Buying a home in Spring Hill from Canada should feel exciting, not stressful. The tax rules on each side of the border can surprise buyers at closing and again at tax time. You want a clear path that protects your cash flow and keeps you compliant in both countries. This guide gives you the essentials you need to buy with confidence in Hernando County. Let’s dive in.
FIRPTA at closing: what to expect
If the seller is a foreign person, U.S. law generally requires the buyer or closing agent to withhold 15% of the gross sale price under FIRPTA. This is a prepayment of the seller’s U.S. tax, and it appears on the closing statement when it applies. Learn the basics on the IRS’s overview of FIRPTA withholding.
There are limited exceptions. If a buyer intends to use the home as a personal residence and the price is $300,000 or less, withholding may not apply. A seller can also request a reduced or zero withholding certificate if the expected U.S. tax is lower. That request must be filed with the IRS before or at closing, and it usually requires a U.S. taxpayer ID.
As a Canadian buyer, you may be asked to help confirm the seller’s status so the closing agent can apply the correct rules. If a reduced withholding certificate is in play, expect extra documentation and timing considerations.
Rental income tax: choose your path
If you plan to rent your Spring Hill property, you have two main U.S. federal tax paths as a nonresident owner. The default is 30% withholding on gross rental income, which does not allow deductions. Alternatively, you can elect to treat the income as effectively connected with a U.S. trade or business so you can deduct expenses like mortgage interest, property taxes, insurance, repairs and depreciation. The choice affects your cash flow, paperwork and annual filing.
- Start with the IRS guide for nonresident owners of U.S. real property.
- If you make the net-income election, you will file Form 1040‑NR each year and give your manager a Form W‑8ECI so they do not withhold on the gross amount by default.
Selling later: capital gains and refunds
When you sell, your gain on U.S. real property is treated as effectively connected income for U.S. tax purposes. You will file a U.S. return to report the sale and compute your actual tax due. If FIRPTA withholding exceeded the true tax, you can request a refund by filing your return. See the IRS Form 1040‑NR instructions for details.
IDs and paperwork you may need
Many foreign owners and sellers need an ITIN to file U.S. returns, request FIRPTA withholding certificates or claim refunds. The IRS explains how to apply in its ITIN guidance for foreign property buyers and sellers. Processing can take weeks, so plan ahead.
Canadian tax reporting that still applies
Canada taxes your worldwide income. That means you report your U.S. rental income and capital gains in Canada and generally claim a foreign tax credit for U.S. tax paid so you avoid double taxation. If your aggregate cost of specified foreign property exceeds CAD $100,000 at any time in the year, you may also need to file the CRA’s T1135. See the CRA’s guide to the Foreign Income Verification Statement (T1135).
When reporting in Canada, convert U.S. dollars to Canadian dollars using CRA‑accepted exchange rates. Keep records of exchange rates, expenses and improvements so you can track adjusted cost base accurately. For a practical overview of conversion and ACB mechanics, see this explanation of foreign currency and ACB calculations.
Florida and Hernando County costs to budget
Florida has no state personal income tax, which benefits residents. This does not change your U.S. federal tax obligations as a nonresident owner. For a quick reference on state income tax context, see the Tax Foundation’s state guide to income tax rates and brackets.
At closing in Hernando County, expect documentary stamp tax and recording fees. A common Florida formula is about $0.70 per $100 of deed consideration and about $0.35 per $100 of mortgage amount, plus a nonrecurring intangible tax on certain mortgages. Review typical formulas on this county recording fee reference for documentary stamp taxes. Allocation between buyer and seller depends on your contract.
Property taxes vary by assessed value and local millage rates. For an estimate, review Hernando County references such as PropertyTax101’s Hernando County page and consult parcel‑specific data from the county appraiser or tax collector. Taxes are typically prorated at closing.
Flood and hurricane considerations matter on the Nature Coast. Lenders will require flood insurance if the home is in a Special Flood Hazard Area. Check the FEMA Flood Map Service Center for how to read flood maps and verify insurance requirements early so premiums do not surprise you.
Estate tax exposure to consider
U.S.‑situated real estate owned directly by a nonresident noncitizen can be subject to U.S. estate tax. The automatic exemption available to nonresidents is much smaller than for U.S. citizens, and filing can be required when U.S. assets exceed about $60,000. For higher value holdings, build estate planning into your ownership decision and beneficiary planning.
Ownership structures at a glance
Choosing how to hold title affects taxes, liability and succession. Here is a high‑level view to discuss with your advisors:
Direct individual ownership
- Pros: Simpler, straightforward financing, capital gains reported on your personal returns in both countries.
- Cons: Potential U.S. estate tax exposure, FIRPTA on sale, rental withholding unless you elect net taxation.
U.S. single‑member LLC (disregarded for tax)
- Pros: Limited liability, often treated like direct ownership for U.S. tax purposes.
- Cons: Does not remove U.S. estate tax exposure. Extra filings may apply depending on structure.
Foreign corporation owning the U.S. property
- Pros: Common way to mitigate direct U.S. estate tax exposure and organize succession.
- Cons: Corporate‑level tax, possible branch profits tax and more complex compliance.
Because structure choices are fact specific, coordinate legal and cross‑border tax advice before you write an offer.
Step‑by‑step checklist for Canadians
Before you offer
- Decide on ownership structure and speak with cross‑border tax and legal advisors.
- Confirm local custom for closing costs and engage a title company or attorney experienced with foreign buyers in Hernando County.
At offer and contract
- Ask if the seller is a foreign person so the contract addresses FIRPTA correctly.
- If you plan to rent, decide whether you will elect net taxation and prepare to file 1040‑NR. Obtain or apply for an ITIN if needed.
At closing
- Budget for Florida doc stamps, recording fees and any mortgage‑related intangible tax.
- If FIRPTA applies, confirm the withholding amount or whether a reduced withholding certificate is being used.
After closing and each tax year
- File U.S. returns when required and provide the right W‑8 form to managers or payers.
- In Canada, report the income and capital gains, file T1135 if required and claim foreign tax credits. Maintain currency conversion records.
Common mistakes to avoid
- Waiting too long to apply for an ITIN or withholding certificate, which can delay refunds.
- Ignoring the ECI vs. gross withholding decision for rental income, which can harm cash flow.
- Forgetting CRA obligations like T1135 and foreign tax credits, which can lead to penalties or double tax.
- Overlooking flood zone status and insurance costs until the lender’s final checklist.
- Assuming Florida’s lack of state income tax eliminates your U.S. federal filing.
- Holding title without considering U.S. estate tax exposure for higher‑value assets.
Move forward with confidence
Buying in Spring Hill can be smooth when you plan for taxes, structure and local costs from day one. If you want a coordinated approach that aligns cross‑border tax steps with a targeted property search and a clean closing, our team is ready to help. Connect with Leaf and Palm Realty Corp. for advisory‑driven support across Ontario and South Florida.
FAQs
Do Canadian buyers always face FIRPTA at closing?
- If the seller is a foreign person, buyers usually see 15% FIRPTA withholding on the gross price unless a residence exception applies or the IRS grants a reduced withholding certificate.
How are U.S. rental earnings taxed for nonresidents?
- By default, 30% withholding applies to gross rent, or you can elect net taxation so you deduct expenses and file Form 1040‑NR each year.
What Canadian forms might I need for a Florida rental?
- You generally report income on your T1, may file T1135 if your specified foreign property cost exceeds CAD $100,000 and claim foreign tax credits for U.S. tax paid.
Do I pay Florida state income tax on rent?
- No, Florida does not have a state personal income tax, but your U.S. federal tax and Canadian reporting still apply.
When do I need a U.S. ITIN?
- You need an ITIN if you must file a U.S. tax return, claim a refund of FIRPTA withholding or request certain withholding certificates.
Should I hold the home in an LLC or corporation?
- It depends on your goals for liability protection, estate exposure and tax efficiency, so get cross‑border legal and tax advice before choosing a structure.
