Taxes, HOA Fees, and Rental Income

How High Are Property Taxes in Arizona?

Property taxes are very affordable in most parts of Arizona. In addition, Arizona does not have a two-tier tax system like California and Florida where new homeowners pay more in property taxes than other homeowners. A new Canadian homeowner will pay the same property tax rate in Arizona as their American neighbors next door.

How High Are HOA Fees in Arizona?

Be aware of homeowner association (HOA) fees, as they can vary greatly. All condos and the majority of homes in Arizona have HOA’s. Do your due diligence on the HOA prior to closing escrow on your home.

Will Canadians Pay Tax on Rental Income Generated from Arizona Investment Property?

Yes, the IRS will tax income from real estate owned nonresident aliens.

Snowbirds who rent out their real estate located in the US, should beware: a withholding tax of 30% normally applies to the gross amount of any rent paid to a resident of Canada on real estate located in the US. Unlike withholding taxes on interest and dividents, the tax is not reduced by the Canada-US tax treaty. One way for Canadians to avoid the 30% gross withholding tax is to file a US tax return and elect to pay tax on net rental income. The Canadian resident can then receive a refund for any taxes withheld, to the extent the withholding amount exceeds the tax payable.

If a Canadian owns US rental property and incurs significant expenses (mortgage interest, maintenance, insurance, property management, property taxes, etc), he/she may want to file a US income tax return and take advantage of the net rental income election. The amount subject to tax at the marginal rate will likely be substantially lower than the amount subject to 30% withholding.

Interested buyers should contact an accountant or lawyer for details.