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Question

Hello,

I am planning on purchasing a rental property in the U.S. If I am not a U.S. citizen do I need to file a US tax return?

XXXXXX

 

Answer

Hi XXXX

As a Canadian resident, owning a U.S. rental property, you may be required to file a US income tax return. Similar to Canada, if a non-resident of the US earns rental income on a rental property they are required to report this income to the IRS and remit the appropriate tax holdings if the appropriate elections are not made.
A non-resident of the U.S. who owns U.S rental property has one of the following options:

Option #1

Remit 30% of the gross rental income to the IRS. The rental agent or tenants must remit this amount to the IRS. Under this option you do not have to file a U.S. income tax return.

Option #2

Complete form W8-ECI. This form elects to treat the income as effectively connected with a trade or business in the U.S. and allows for the rental income to be taxed on a net income basis. Once completed, the form is given to the rental agent or person renting the property and filed along with your U.S. income tax return.

The net income of the rental property is calculated as the gross rental income less expenses.
If you elect to treat the rental income as effectively connected you will need to apply for a U.S. Individual Taxpayer Identification Number (ITIN) and file a US income return and report the net rental income/loss from the property annually. To apply for an ITIN you will need to complete a W-7.

Also note that State tax filing requirements may also apply and the rental activity must also be reported on your Canadian tax return.

Hope this information was helpful and please don’t hesitate to call us at 250-381-2400 if you have any questions.

Phil Hogan

Phil Hogan is a Canadian and US CPA working with clients throughout Canada and the US. Phil advises on cross border tax and financial planning matters. Phil can be reached at phil@hutcheson.ca or via telephone at 250-661-9417. You can also read more about Phil at Hutcheson.ca/phil.
Phil Hogan

2 Responses to “Canadian Owning US Rental Property – Tax Filing Consequences”

  1. Balman says:

    if I own US rental property and file US taxes NR1040 and NR140 due I still need to fill my rental income on my Canadian tax return?

  2. Mary Lou Moffat says:

    hello
    It looks like you may be the firm i am looking for. I live in Victoria but am planning to do some real estate investing in the USA. I have already set up an LLC and a Canadian corporation, have an EIN and an ITIN, just waiting to hear back on the status of my W-7. There is a firm in Utah that want my business for $2995US plus $24.95/month to monitor. A lot to pay when so far I haven’t bought a property yet. I am thinking that your firm could do my US and Canadian taxes?
    Regards, Mary Lou

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Philip Hogan

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The information contained in this article is for general use only and should not be viewed as professional advice. Accounting and tax rules and regulations regularly change and individuals should contact a competent professional to obtain accounting and tax advice based on their specific situation.

Phil Hogan

Phil Hogan is a Canadian and US CPA working with clients throughout Canada and the US. Phil advises on cross border tax and financial planning matters. Phil can be reached at phil@hutcheson.ca or via telephone at 250-661-9417. You can also read more about Phil at Hutcheson.ca/phil.
Phil Hogan

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