Canadians who own a residential rental property in the U.S
If you are a Canadian citizen and own a residential rental property in the U.S, you are subject U.S income taxes. There are two options available to you to meet the IRS tax reporting requirements.
30% Withholding Tax on Gross Income
Under this provision you can choose to pay flat 30% income tax on your gross rental income. You are not allowed to deduct any expenses under this method. If you choose this method, you do not have to file a U.S income tax return. However, you are required to report your rental income and the taxes you paid on your gross income on your Canadian income tax return.
You can claim foreign tax credit but you may not be able to recover the full 30% U.S withholding tax. CRA may also ask you to provide form 1042S as a proof of taxes that were withheld in the U.S
Net Rental Basis
Under this method you can file a 1040NR (non-resident income tax return) and complete a schedule E (Supplemental Income and Loss from real estate rental).
You can deduct expenses such as insurance, mortgage interest, property taxes, repairs, supplies, management fee, and utilities to calculate your net rental income.
Deadline for filing U.S taxes is June 15.
For jointly owned properties, each party is required to file a separate income tax return and report their proportion of the rental income and expenses.
You are also required to report your rental income on you Canadian taxes if you use net rental basis.
If you are a Canadian citizen who own a residential rental property in the U.S and seek advice in filing your cross border and Canadian taxes, please contact me to schedule an appointment.
Mansoor Suhail (Mani)
Accountant
MS TAX – BSBA – EA – ICIA – RA
1804 – 1360 York Mills Road
North York, ON, M3A 2A3
TAX for CANADA AND U.S.A
Web: www.theaccountingandtax.com
416 – 283 – 8774
