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The Rental Property File

Canadian-owned US rental property: your tax obligations

You bought a condo in Florida, a house outside Phoenix, or a duplex in Nashville, and you rent it out. The US default is to withhold 30% off the top. The better path usually saves you thousands. This tool estimates your federal tax under both options and flags what you need to do first.

Quick answer: the default 30% withholding on gross rent is almost never the best option. The Section 871(d) net-basis election lets you deduct expenses and depreciation, then pay tax only on what is left. For most Canadian rental owners, the election saves materially. Enter your numbers to see the comparison.

This tool provides estimates for informational purposes only. It is not legal, tax, or accounting advice. Tax laws change, and individual circumstances vary. Before making any election or filing any return, consult a cross-border CPA or tax attorney.

Your property and income

Total rent collected before any expenses or withholding.

$

Deductible under the net-basis election. Enter 0 if the property is paid off.

$

US property taxes; generally fully deductible.

$

Hazard, liability, and flood insurance.

$

Include property management fees here.

$

Used to estimate FIRPTA withholding on a future sale and to pre-fill depreciation.

$

Estimated annual depreciation (80/20 land split assumed, 27.5-year schedule)

$

Do you have a US ITIN?

Your estimates

Path A: 30% gross withholding (FDAP default)

  • Gross rental income$24,000
  • Withholding rate30%
  • Estimated US tax (FDAP)$7,200

Without a net-basis election, your tenant or property manager must withhold 30% of gross rent and remit it to the IRS under the FDAP rules for non-resident aliens. You receive no deduction for expenses. Source: IRC Section 871(a); IRS Publication 515.

Path B: net-basis election (Section 871(d))

  • Gross rental income$24,000
  • Total deductible expenses−$23,973
  • Mortgage interest$8,000
  • Property taxes$4,500
  • Insurance$1,800
  • Repairs and maintenance$2,400
  • Depreciation (estimate)$7,273
  • Net taxable rental income$27
  • Estimated US income tax (1040-NR)$3

The Section 871(d) election treats your rental activity as a US trade or business. You file a 1040-NR each year and pay tax only on net income after expenses and depreciation. The election is made by attaching a statement listing your US properties to your 1040-NR (Treasury Regulation 1.871-10). Separately, give Form W-8ECI to your tenant or property manager to stop future 30% withholding. Two different documents: the statement on the return makes the election; the W-8ECI stops the withholding. Source: IRC Section 871(d); Treasury Regulation 1.871-10; Form W-8ECI instructions.

Annual comparison

  • FDAP tax estimate (Path A)$7,200
  • Net-basis tax estimate (Path B)$3
  • Estimated annual savings from election$7,197

Making the Section 871(d) election likely saves you approximately $7,197 per year in US taxes compared to the default 30% withholding path. A cross-border CPA can confirm eligibility and file the election.

State income tax

Florida has no state income tax on rental income. Your US tax obligation is limited to federal tax.

When you sell: FIRPTA withholding

  • Approximate property value$350,000
  • FIRPTA withholding estimate (15%) (15%)$52,500

When a Canadian (or any non-US person) sells US real property, the buyer must withhold 15% of the gross sale price under the Foreign Investment in Real Property Tax Act (FIRPTA) and remit it to the IRS. This is a withholding on account of tax, not a final tax. Your actual capital gain tax and depreciation recapture tax on the 1040-NR may be lower. If so, you can file Form 8288-B before closing to request a reduced withholding certificate based on your expected actual tax. That requires an ITIN. Source: IRC Section 1445; Form 8288-B instructions.

The withholding amount above is based on the property value you entered as a proxy for sale price. Actual sale price and allowable basis adjustments will change the numbers.

Your Canadian obligations

As a Canadian resident, you must report your worldwide income to the CRA, including US rental income.

Foreign tax credit

US taxes paid (or withheld) can be claimed as a foreign tax credit on your Canadian return, reducing double taxation. The Canada-US Tax Treaty (Articles VI and XXIV) provides the framework for this relief. Keep records of all US taxes paid.

T1135 Foreign Income Verification

If the total cost of your foreign property (including US real estate held to earn income) exceeds CAD $100,000 at any point during the year, you must file Form T1135 with your Canadian return. Penalties for late or missing T1135 filings are significant. A property you rent out is reportable. A vacation home you never rent is excluded. A mixed-use property is reportable; a cross-border CPA can confirm how to treat it.

US rental income on your T1

Report gross US rental income and expenses on your Canadian return. The CRA generally allows the same expenses deducted on the US return, though the treatment of depreciation differs (CCA rules apply in Canada, not the US 27.5-year schedule). A cross-border CPA handles both returns and ensures the foreign tax credit is correctly claimed.

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Tax rates and rules as of 2024. Sources: IRS Publication 515 / Form W-7 (ITIN) / Form 8288-B (FIRPTA) / CRA T1135. General information only. Not tax, legal, or accounting advice. Tax laws change; individual results vary. Consult a cross-border CPA or tax attorney before making any election or filing any return.

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