Buying US Property – A Tax Guide For Canadians

If you are a Canadian resident who is intending to buy a residential property in the United States, it is important that you are aware of the following tax implications, particularly if you intend to rent it for any period of time during the year.

A non-US resident owning a US residential rental property may elect either of the following options: OPTION 1 elect to pay a tax equal to 30% of the gross rental revenue -OR- OPTION 2 elect to have rental income taxed on a net profit basis. In order to avoid the 30% gross revenue tax on your US property you must file form W8-ECI and provide a copy to the rental manager or person renting your property.

If you elect to pay tax on a net profit basis, you are required to file a US personal or corporate tax return to determine the amount of US tax owed. If you elect this option you will need to apply for a US tax identification number. The net rental profit on your US real estate is calculated as the gross rental income less ordinary and necessary expenses.

If you intend to use a US residential rental property for personal purposes in any tax year, you should be aware that this may have certain tax implications depending on the amount of time you use the rental property. These tax implications may have relatively little impact for a short vacation but residing in the US for a prolonged period can result in a non-resident being deemed by the IRS to be a US resident and taxed in the US on worldwide earnings.