Owning Rental Property in the U.S.
Canadians owning US real estate
In addition to spending time in the U.S. on a regular basis, many Canadians own U.S. real estate.
In most cases, the rents received are subject to a withholding tax.
The Tax Code allows non-residents to elect to be taxed as though their income is effectively connected with a U.S. trade or business, which means you can deduct expenses incurred to earn such income. Once this election is made, there is no requirement for your tenant or property manager to withhold tax, but if requested, you will need to complete Form W-8ECI.
If you wish to deduct expenses in order to be taxed on a net income basis, you must file a U.S. tax return and meet certain other requirements. On your U.S. tax return (Form 1040NR), you would show the income and expenses, as well as the amount of tax withheld.
In Canada, your net rental income will be taxable and a foreign tax credit for U.S. taxes paid on the net rent may be claimed to reduce your Canadian taxes payable.
It should also be noted, that if you own U.S. rental property, you may also be required to comply with Canada's foreign reporting requirements (Form T1135).
At HerrickGlobal, we can give you peace of mind that comes with knowing you will not face the unknown alone. Our highly trained advisors can handle all of your tax filing needs quickly and efficiently. Schedule an appointment today - we look forward to meeting you!