Bought a Condo in Florida? The IRS Might Take 40% When You Die. The 'US Estate Tax' Guide for Canadians
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| Bought a Condo in Florida? |
You are a Canadian "Snowbird." You worked hard, saved up, and bought a beautiful vacation condo in Florida or Arizona for $800,000 USD to escape the freezing Canadian winter.
You assume that because you are a Canadian citizen and pay taxes to the CRA, the American IRS has no business with your money.
You are wrong.
The US government levies an Estate Tax (Death Tax) on "US Situs Assets" owned by non-residents. If you pass away, the IRS could demand up to 40% of your property's value before your children can inherit a single brick. And this is on top of the Canadian capital gains tax you pay to the CRA.
The $60,000 "Filing" Trap
Many Canadians believe: "I'm not ultra-rich, so this doesn't apply to me."
Here is the scary reality: If you own US assets (Real Estate, US Stocks in a non-registered account) worth more than $60,000 USD, your estate MUST file a US Tax Return (Form 706-NA) upon your death.
- The Hassle: Even if you don't owe tax, your executor must hire expensive cross-border accountants to file complex forms to prove it.
- The Freeze: The US property title is effectively frozen until the IRS issues a "Transfer Certificate." This can take months or even years.
When Do You Actually Pay the 40% Tax?
Thanks to the Canada-US Tax Treaty, most Canadians get a tax credit. However, the exemption limit drastically changed in 2026 due to the sunset of the US tax cuts.
⚠️ The Danger Zone (2026 Update)
You generally owe US Estate Tax if TWO conditions are met:
- The value of your US Assets is over $60,000 USD.
- Your Worldwide Estate (Global Net Worth) exceeds the exemption limit. (Note: As of Jan 1, 2026, this limit dropped to approximately $7.15 Million USD).
Critical Warning: "Worldwide Estate" includes EVERYTHING: Your Toronto home, your RRSPs, your business value, and crucially, the Death Benefit of your Life Insurance.
How to Lower the Tax (The "Non-Recourse Mortgage" Hack)
If you are wealthy and worried about hitting the cap, here is a powerful strategy used by savvy investors.
Normally, debts don't reduce the value of your estate dollar-for-dollar in the IRS calculation. BUT, a Non-Recourse Mortgage is different.
- What it is: A mortgage where the bank's ONLY collateral is the property itself. They cannot come after your other assets if you default.
- The Tax Hack: With a non-recourse mortgage, the IRS only taxes the Equity, not the gross value.
💰 Calculation Example
- Florida Condo Value: $2,000,000 USD.
- Non-Recourse Mortgage: $1,000,000 USD.
- Taxable Estate Value: Only $1,000,000.
By keeping a mortgage on the property, you slashed your taxable US estate by half instantly.
Ownership Structures: What NOT to Do
How you hold the title matters more than the location.
| Structure | Pros | Cons (The Trap) |
|---|---|---|
| Personal Name | Simple, cheap. Capital gains exemption eligibility. | Full exposure to US Estate Tax. Probate issues. |
| Canadian Corporation | Avoids US Estate Tax (Corporations don't die). | CRA Penalty: You must pay a "Shareholder Benefit" tax for personal use of the property. Terrible for vacation homes. |
| Cross-Border Trust | Bypasses Probate. Can protect against Estate Tax. | Expensive to set up and maintain. High legal fees. |
Conclusion
Don't let the Palm Trees distract you from the paperwork.
If you own US real estate, you are playing in the IRS's backyard. At a minimum, ensure you have a US Will to handle the asset. If your global net worth is high (over $7M USD), look into a Non-Recourse Mortgage or Life Insurance specifically designed to pay the inevitable tax bill.
Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. US Estate Tax laws are subject to change (e.g., the 2026 TCJA sunset). Always consult with a qualified Cross-Border Tax Accountant (CPA) to review your specific exposure and filing requirements.
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