How is a US vacation home taxed for Canadians who do not rent it out?

Why no rental income means no annual US return

A US non-resident owes US federal income tax on US-source income, and a vacation home that only the owner uses generates none. There is no rent, so there is nothing to report on a 1040-NR, and nothing to withhold. What you do pay is the same local property tax every owner in the county pays, billed by the county or municipality rather than the IRS, and any homeowners association or condo fees the building charges. None of that flows through a US tax return.

This surprises some owners who assume that owning any US asset triggers an annual US filing. It does not, as long as the property produces no US income and you are not otherwise a US tax resident. The moment you rent it out, even for a single week, that changes: rental income brings the property into the FIRPTA withholding and 1040-NR system the same way it does for a full-time US rental property. Lending the property to family or friends for free is not the same as renting it, but swapping weeks with another owner or taking any payment at all crosses into rental territory even if no formal lease is signed.

Why the days you spend there still matter

Time in the US is tracked separately from income. The substantial presence test counts your US days using a weighted formula across the current and two prior years, and a snowbird who spends winters at the property can hit the threshold for deemed US tax residency without ever earning a dollar there. The fix, for someone who still spends less than 183 days in the US in the current year and keeps a closer connection to Canada, is Form 8840, filed by June 15 of the following year. Skipping it when the test is met is the single most common way a snowbird accidentally becomes a US tax resident on paper.

What happens when you sell

Selling triggers US tax consequences whether or not the property was ever rented, because FIRPTA applies to any disposition of US real estate by a foreign person. The closing agent withholds a share of the gross sale price, generally 15 percent, and you file a 1040-NR the following year to report the actual gain and reconcile the withholding, potentially reducing it in advance with Form 8288-B. On the Canadian side, you report the same sale as a capital gain or loss in Canadian dollars, translating the US-dollar purchase and sale prices at the exchange rates on those two dates, and you claim a foreign tax credit for the US tax you actually paid.

One planning wrinkle is worth knowing about: Canada's principal residence exemption is not restricted to Canadian real estate, so a US vacation home that you and your family genuinely lived in for part of each year can, in some circumstances, be designated as a principal residence for some or all of the years you owned it. The catch is that you can only have one principal residence designated per family per year, so designating the US property means giving up the exemption on your Canadian home for the same years. That trade-off needs to be modelled with real numbers before you make it, not assumed to be a free win.

Why the property counts in your US estate the whole time you own it

A US vacation home is a US-situs asset for US estate tax purposes from the day you buy it, independent of whether it ever produces income. If you own it at death, its value is part of the calculation behind Form 706-NA and the treaty-based credit available to Canadian estates, covered in more detail in our answer on US estate tax on a Florida condo. This exposure exists regardless of how the property is used, which is why estate planning for a vacation home usually starts well before any thought of selling it.

Why the ownership structure you pick can create its own tax problem

How you hold the property changes the tax picture more than most buyers expect. Holding it personally is the simplest choice and preserves the principal residence flexibility described above, but leaves the full value exposed to US estate tax. Buying it through a Canadian corporation avoids that exposure but usually creates a taxable shareholder benefit under Canadian rules, because personal use of a corporate asset is treated as a benefit conferred on the shareholder. A US LLC creates a different problem: since 2010 the Canada-US tax treaty no longer automatically treats an LLC as fiscally transparent for Canadian purposes, which can produce double taxation rather than the liability protection buyers are usually looking for. Our answer on buying US real estate personally, through a corporation, or through an LLC walks through the trade-offs in full.

How we handle US vacation homes for clients

We treat a personal-use US property as its own file from the start: we track the day counts that feed Form 8840, keep an eye on the principal residence trade-off before it becomes urgent, and build the estate tax exposure into a client's broader cross-border plan rather than leaving it as a surprise for the executor. When a sale is on the horizon, we bring in the FIRPTA and 1040-NR side well ahead of closing. Our snowbird property tax guide covers the day-count and filing rules in more depth.

Source: IRS — Substantial Presence Test.