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February 4, 2022 By stowelawpllc

WHAT CANADIANS NEED TO KNOW BEFORE PURCHASING WASHINGTON STATE U.S. REAL ESTATE

A Canadian who is a non-U.S. Citizen or non-U.S Tax Resident should plan in advance prior to buying real estate in Washington State, which is very different from buying real estate in B.C. and Canada.

  • Before buying Washington real estate understand that you and your estate may be subject to U.S. and Washington State taxes. Similar to Canada there may be capital gains or losses in the event of a future sale of your Washington real estate. However, unlike Canada, your estate may be subject to U.S. and Washington Estate Tax upon your passing. Whether any estate tax will be due is generally determined by the fair market value of your Washington real estate and other U.S. based assets as well as the fair market value of your Canadian and worldwide assets on the date of passing. Although the U.S. Federal Estate Tax exemption is very high at $13,990,000 U.S. Dollars approximately in 2025, the Washington Estate Tax exemption is much lower at $2,193,000 U.S. Dollars approximately. In other words, if your estate has assets with a gross fair market value of greater than $2,193,000 U.S. Dollars (less any applicable deductions) on the date of your passing then there will likely be Washington Estate tax to pay (even if you are a Canadian tax resident). Likewise, if your estate has assets with a net value of greater than $13,990,000 U.S. Dollars on the date of your passing then there will be U.S. Federal Estate Tax. It is recommended you consult with a U.S. Tax Advisor to determine what if any estate tax may be due. If potential estate tax will be incurred in the future you may wish to reconsider buying Washington real estate in the first place.
  • Before you buy consider possible alternatives to hold title of your Washington real estate. A common misconception is that Washington real estate held “jointly” automatically transfers to the survivors. However, that is not likely not true in Washington. While Joint Tenancy with Rights of Survivorship is a common way to hold title in Canada, it is not often recommended in Washington. A Discretionary Spousal Trust based in Canada may be beneficial for a Canadian husband and wife and their estate planning but otherwise a Trust is not a favored entity by the Canada Revenue Agency (CRA) to hold Washington real estate. It is recommended you consult with your Canadian Tax Advisor prior to purchasing Washington real estate. And then also consider the best way to hold title in Washington.
  • Canadian husband and wife buyers should be aware that Washington State has Community Property Laws which specify that all property acquired in Washington during marriage belongs to the marital community (50%/50% for each spouse) even if you are a Canadian Citizen and Resident.  And if one spouse purchases the Washington real estate in his or her name only it is likely that the other spouse who was not named on record title will be presumed to have a 50% interest in the real estate regardless based upon Community Property Laws. 
  • Before you buy consider how to plan for the passing of your Washington real estate. Most of the time it is best to have your own Washington State estate plan in addition to your B.C./Canadian Will and Estate Plan. It is not recommended you rely on your B.C/Canadian Will to transfer your real estate in Washington State. Canadian Courts have no authority to transfer Washington/U.S. real estate (or order a B.C./Canadian executor to do so). Also note that a B.C. Power of Attorney is often not recognized to transfer title in Washington.
  • Purchase and Sale Agreements (PSA) are normally necessary to buy and sell Washington real estate. Washington has mandatory requirements which must be included in a PSA, which essentially serves as a road map to Closing.
  • Closing documents to finalize the purchase and sale are usually prepared by an escrow agent (who is normally affiliated with a Title Insurance Company), and not by an attorney or notary public  which is common with a completion in B.C./Canada.
  • South of the Border, Title Insurance Companies not only prepare the Closing documents but also insure the ”title” (although certain matters are not covered or excluded). Beware that it is possible for a property owner to lose property rights over time by boundary disputes, adverse claims or prescriptive uses in Washington. So the property legally described in a deed or conveyance may not be the property which the buyer is legally entitled. It is the “Wild West” down here. So there are often risks in any real estate purchase in Washington which are not typical when purchasing property in Canada. In order to reduce the risks, it is recommended that a buyer obtain a survey and perform other due diligence before completing the purchase of Washington real estate. I recommend you read my blog article about 7 Tips when-buying Washington Real Estate.  And of course obtain legal counsel to assist you with the purchase of the Washington real estate.

The above is information is by no way exhaustive. And the above is not intended to be legal advice but is general information provided as a courtesy.

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Canadian Non-U.S. Residents Buying Real Estate in Washington State

  • Buying Real Estate in Washington is different from B.C.
  • Plan before and consider a B.C. Trust or other alternatives to hold title with your B.C. Lawyer, as well as other alternatives in Washington.
  • “Closing” or completion documents are usually prepared by an escrow agent (usually affiliated with a Title Insurance Company), and not by an attorney as in B.C.
  • South of the Border, Title Insurance Companies insure the ”title” and certain matters may or may not be covered. But recognize that it is possible for a property owner to lose property rights by adverse claims over time. So there is often risks in any real estate transaction.
  • In order to reduce the risks, it is recommended that a buyer obtain a survey before completing the purchase of Real Estate in Washington.

Canadian Non-U.S. Residents Selling or Gifting Real Estate in Washington State

  • A sale of U.S. real estate requires the buyer to withhold 15% of the amount realized by the foreign seller on most transactions unless exempted.
  • A sale of U.S. real estate may result in U.S. tax liability to the foreign seller although the tax rate may be reduced by capital gains treatment. Any tax paid in the U.S. may be a credit against taxes owed in Canada.
  • A gift of U.S. real estate is generally not favorable and may result in U.S. tax liability. Non-U.S. residents are generally limited to gifting $15,000 USD per year of U.S. based assets tax free.
ARE YOU EXEMPT?
  • Canadian Non-Residents with US based assets are exempt from US estate tax if the value of the assets is $60,000 USD or less. And in this case, no US Estate Tax Form 706-NA would be required. If the Canadian Non-Resident owned U.S. Real Estate it is recommended a Transfer Certificate be obtained from the IRS before any transfer from the decedent’s estate/ Above $60,000 USD a US estate tax return 706-NA is required to be filed within nine (9) months after the date of death. In order to determine if there would be any US estate tax due, a formula under the US-Canada Tax Treaty kicks in. See US- Canada Tax Treaty link below. Normally, there is no US estate tax if the value of your worldwide assets does not exceed the maximum amount, which is adjusted annually. In 2017, it is about $5.4 Million USD. But if your worldwide assets exceed the formula or the $5.4 Million USD (as adjusted annually) there may be US Estate Tax due (which can be around 40%). And the decedent’s estate should request a transfer certificate from the IRS before the estate transfers any property.
  • Link: U.S.-Canada Tax Treaty
  • Article XXIX B (Taxes Imposed by Reason of Death) of the U.S.-Canada Income Tax Treaty (“Treaty” ) provides special rules that may reduce taxes for U.S. citizen or resident decedents with Canadian property and Canadian residents with U.S. property. These rules were first incorporated into the Treaty under the 1995 Protocol to the Treaty.
  • If the decedent was a Canadian resident but not a U.S. citizen at the time of death, the estate can take a “pro rata” unified credit to compute U.S. estate tax. The pro rata credit under the Canadian treaty is determined by multiplying the exclusion amount available to a U.S. citizen decedent by a fraction of the value of the decedent’s U.S. assets over the value of the decedent’s world-wide assets. A statement invoking the right under the Treaty described above and showing the tax calculation must be attached to Form 706-NA. See paragraph 2 of Article XXIX B of the Treaty.
U.S. GREEN CARD HOLDERS
  • Watch abandoning your Green Card, including by failing to change your address and extended visits abroad for more than 180 days.
  • Watch the Expatriation Tax if you abandon your Green Card after satisfying the 8 of 15 year test.
  • Watch U.S. Estate Tax liability if you remain a Green Card holder indefinitely, and do not naturalize and become a U.S. Citizen. In 2017, a U.S. Citizen is entitled to a unified credit of $5,400,000 USD against U.S. Estate Tax.

Canadian Non-Residents Have Preferred Non-Probate Alternatives
to Transfer Real
Estate in Washington State

  • Washington State has innovative non-probate alternatives to transfer real estate upon death in comparison to B.C.
  • Options include Community Property Agreements between spouses, and Transfer on Death Deeds (“TODD”), which can be used between spouses, children, relatives, or other beneficiaries.
  • Another option includes an Affidavit of No (or Lack of) Probate in Washington, and in effect, transfer ownership to the surviving heirs.
  • And even if a Probate is necessary it is often not as burdensome and expensive as in B.C. While there is a court filing fee in Washington, there are no “probate fees” as in B.C.

Canadian Non-Residents Buying Real Estate in Washington State

  • Buying Real Estate in Washington is different than in B.C.
  • Plan before and consider a B.C. Trust or other alternatives to hold title with your B.C. Lawyer, or other alternatives in Washington.
  • “Closing” or final documents are usually prepared by escrow companies, and not completed by an attorney like in B.C.
  • South of the Border, title companies insure the ”title” and certain matters may or may not be excepted. But it is possible for a property owner to lose his property rights by adverse claims over time.
Canadian Non-Residents Selling

Canadian Non-Residents Selling or Gifting Real Estate
in Washington
State

  • A sale of property may trigger U.S. tax liability but the tax rate may be reduced by capital gains treatment. There is often a withholding on most transactions.
  • Gifting U.S. real estate is generally not favorable and may result in U.S. tax liability.
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The articles and information contained on in this website were prepared by Stowe Law PLLC. They are a general statement of the law of the State of Washington. The laws of other states differ from Washington law, and these articles are not intended to describe the law of any state except Washington. The articles and information found on this web site are intended for general informational purposes. They are not legal advice for a reader in any particular legal situation. The only way to obtain legal advice on a particular situation is to consult a licensed attorney. The reader’s use of this website and the information contained herein does not create an attorney-client relationship of any kind with Stowe Law PLLC.

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The BC & Whatcom County Connection

  • Mark understands B.C. and Canadian Culture.
  • Mark, a resident of Point Roberts, WA, has been surrounded by Canadians visiting
    their cottages for many years.
  • Mark’s daughter, born in B.C., plays sports in B.C.
  • Mark enjoys hiking on the Northshore.
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  • Mark enjoys walking the family dog, Enzo, in the woods at Point Roberts.
  • Mark is still trying to “successfully” ride his mountain bike down Galbraith Mountain.
  • EDUCATION
  • University of Washington, Seattle, WA                                          1983
  • Bachelor of Arts in Philosophy–Cum Laude, Honorary Distinction, Phi Beta Kappa
  • Phi Delta Theta Fraternity
  • Gonzaga University, Spokane, WA 1986
  • Juris Doctorate
  • AFFILIATIONS
  • Washington State Bar Association, Member.                    1987-present.
  • US District Court, Western District of Washington, Seattle, WA. 1987-present.
  • Certified Player Agent by the National Hockey League Players Association (“NHLPA”). 1996-present.
  • US Tax Court, Washington D.C. 2009-present.
  • Practitioner of Foreign Law, The Law Society of British Columbia 2017-present.
  • INTERESTS  
  • Enjoys Family, Hockey, Baseball, Mountain Biking, Hiking, and Travel.