Buying a vacation property can be even more exciting than buying your first home was. Now you most likely own your first property (at least the greater portion of it,) you know all about how the buying and mortgage process works; and this time, you’ve thought of everything. Or at least, you think you have. But chances are that all the bases still aren’t covered and that you’ve left out a few things when mapping out your vacation home plans. So, because of that, here are a few more things to think about before you buy that vacation property.
Is it a vacation home, or an investment property?
This is the biggest question you should ask yourself; and you probably think you know the answer right off the bat. But taking out a mortgage on an investment property is a whole different ballgame than taking one out for a vacation home, and you must be clear. And, if you’re taking out a HELOC to help finance the vacation property, the interest on that property could be tax deductible.
Canada, or the U.S.?
With a strong Canadian dollar and cheap, cheap housing in the States, more Canadians than ever are going across the border to buy their vacation homes. So many so in fact, that in 2010 Canadians were the #1 foreign buyer of investment property in the United States. But if you’re dreaming of a sunny escape in Florida or Arizona (an especially popular place for Canucks,) you need to seriously consider that.
First, there are the tax implications to consider. Of course, if you’re buying an income property that’s south of the border, you’re going to need to claim that income on your Canadian taxes. Also, you’ll be hit with a whopping 45 per cent tax from the American government should you purchase any home that’s worth more than $1.5 million. If you’re a billionaire and you’re looking at these luxury properties, the U.S. Canada Tax Treaty will bring you some relief from this tax, but you’ll still be responsible for much of it. As well, some states have their own taxation system set up, such as Florida’s Homestead Act, which will hit you with additional taxes. Know before you go, and you could save yourself a headache.
Buying a vacation home in the States, or even in our own beautiful country, is an incredibly exciting thing. And you need to keep it that way so you don’t groan every time you pull up in your vacation home’s driveway. Be sure to consider a few very important things, and there’s a better chance that the new home will bring nothing but sunny days!