The Finance Blogger


Tax Issues for Snow Birds

Tax Issues for Snow BirdsMost of us really do not give it much thought when we head off on vacation to the United States. We may have been going to the states for many years on the standard two week vacation to Florida, Texas, Arizona or California. We really not been concerned about any tax issues at all. The answer is that you have been right unless you purchased a property in the United States which will complicate matters significantly. This can cause Tax Issues for Snow Birds which you need to work through or face a huge tax bill. Personally we like to rent a condo or home rather than make a purchase. It is called freedom from a lot of issues, but there are advantages to owning as well.

Own vs. Rent

Now that you are older and retired, many people are extending their vacation in the warm south to anywhere from on month to as much as 6 months at a time to escape the cold winters. If you are staying that long, it begins to make sense to own a small condo or sometimes a trailer to live in instead of renting a place every time you head south. We fall into the category were we are just on the edge of it making sense to rent vs/ own. We head south every year for two to three months at a time with a number of other small two or three week vacations to various locations in the US.

Our personal philosophy, tax issues for snow birds aside, is that we do not want to be tied to one location. If I own a place somewhere as a vacation home, then I would want to spend a lot of time there to make use of my investment. Having it sit empty all of the time is not really what it is all about. My wife would not want to rent it out to anyone so I cannot really consider it to be an investment either. It really is a vacation home. As a result we decided not to purchase a place in the US preferring the freedom to be able to go to a variety of places while we travel the US and not need to support two places.

Tax Issues for Snow Birds

This removes one  area of tax issue for us as snow birds since we do not own a property in the states and will not need to be concerned about capital gains etc. The other major area is income tax. This is something that all snow birds should look into. If you plan to be in the United States for an extended period up to 180 days a year then you could become subject to income tax on all of your income and have to pay tax to the IRS. You need to be able to demonstrate that your home is in Canada and that you have not severed ties to Canada. How do you do that, well you should talk to an expert, but here is a short list of things to make sure that you do not give up:

  • Own or rent a home in Canada that is available to you upon your return
  • Pay taxes on this home
  • Have Canadian bank accounts
  • Pay federal and provincial income tax
  • Can show that this home in Canada is your permanent home
  • Have a provincial drivers license
  • Have a provincial health card

IRS Snowbird Tax Issues

While this may seem trivial, snowbirds traveling to the US should have evidence of these things with them or be able to get them to show US customs officials. There is a lot more detail to dig into , however the main issue is to be able to show that you are a non resident alien and do not fall under the IRS tax rules. If you are labeled a resident alien you could be forced to pay tax in the US to the IRS, which makes life a lot more complex.

If you plan to purchase a property in the US and / or spend a significant amount of time in the US it is definitely worth taking the time to understand these issues in more detail and complete your tax planning properly.

 

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