U.S. Tax Obligations of Canadians – U.S. Citizens, Snowbirds, and Owners of U.S. Property

Canadians with property in the U.S.: Know your U.S. tax filing requirements

Depending on your situation, as a Canadian with non-U.S. citizenship and property in the United States, you may have filing requirements. If the property is simply for your enjoyment, then it is unlikely you would have a filing requirement. However, if you rent out the property for more than 15 days in a calendar year, you may have a filing requirement.

Canadian tax requirements for rental properties in the U.S.

For Canadians holding rental property in the United States, the IRS requires a 30% non-resident withholding tax be remitted to them on the gross rental income. The property manager or tenant of the property is responsible for remitting this withholding tax. With properly withheld and remitted taxes, you should not have U.S. tax filing obligations. However, you likely have expenses attributable to the property which would reduce your tax liability to the U.S.

To claim your rental expenses, a special election can be made which will allow you to be taxed on your rental income after those expenses are deducted. If you choose to make this election, you must file a non-resident U.S. tax return to report your rental income, expenses, and potentially pay any taxes that may be owing.

Depending on the state the property is located there could be additional state withholdings and filings required.

Of course, as a Canadian citizen, you will also need to report the rental income on your Canadian tax return and can potentially offset any Canadian taxes owing with a foreign tax credit for any U.S. taxes paid. Additionally, you may need to file a T1135 Foreign Income Verification Statement to report this foreign asset to CRA.

If you own property in the U.S., discuss your tax obligations with a trusted Crowe MacKay tax advisor so they can be aware of your overall holdings and advise you of any potential tax consequences you may be facing.

What happens if I sell my U.S. property?

As a Canadian selling property in the United States, you will be subject to withholding rules under FIRPTA ((Foreign Investment in Real Property Tax Act). This means that the IRS will withhold 15% of the gross selling price at the time of the sale. Additionally, there could be additional state withholdings depending on where the property is located. This doesn’t represent what your final tax liability will be on the sale of the property, it is simply the way the IRS ensures you file your income tax return to report the sale of the property. The IRS will hold the funds until you file your non-resident income tax return and refund any excess withholdings once they process the return. The same is true for any state withholdings that may have been withheld.

There are ways to reduce or eliminate the withholding requirement, so make sure you plan ahead if you’re thinking of selling your U.S. property (rental or otherwise). As was noted above with U.S. rental income, the sale of the U.S. property will need to be reported on your Canadian income tax return as well. This is another reason it is important to ensure your trusted Crowe advisor is aware of all of your sale activities – both locally and abroad.

This article has been published for general information. You should always contact your trusted advisor for specific guidance pertaining to your individual tax needs. This publication is not a substitute for obtaining personalized advice.

If you are looking for Tax Services, Crowe MacKay provides personalized support. Our tax professionals will help you maximize tax-planning opportunities and ensure the minimum amount required by law is paid.