Who We Help · Real Estate · US Rentals
Canadians owning US rental property: get taxed on profit, not on rent.
By default the IRS takes a flat 30% of your gross US rent — no deductions, no mortgage interest, no depreciation. One election changes that: taxed on net income at graduated rates instead. Most Canadian landlords who file properly end up owing far less in the US, with the balance credited against their Canadian tax.
By the AnalytIQ Accounting team · Last reviewed: August 12, 2026
The 30% problem, and the election that fixes it
US rent paid to a non-resident is subject to 30% withholding on gross rent. The fix is the section 871(d) "net election": attach it to your 1040-NR and your rental is taxed like a business — after mortgage interest, property taxes, management fees, insurance, and depreciation. Give your property manager or tenant Form W-8ECI and the 30% withholding stops at source.
Two deadlines matter more than any others. You need an ITIN (allow 7–11 weeks — we can certify your passport as a Certifying Acceptance Agent so you never mail it). And if you file your 1040-NR more than 16 months late, the IRS can deny every deduction — you're back to 30% of gross with no way out.
Depreciation is not optional
US residential rentals depreciate over 27.5 years (building only). Skipping it doesn't help you: at sale, the IRS recaptures depreciation that was allowed or allowable — you pay recapture tax (up to 25%) on deductions you never took. Claim it, every year.
What each state adds
| State | Rental income treatment |
|---|---|
| Florida | No state income tax on rental income |
| Texas | No state income tax |
| Arizona | 2.5% flat tax — nonresident return (Form 140NR) required |
When you sell: FIRPTA
The buyer must withhold 15% of the gross sale price (10% between $300K–$1M with buyer-residence intent; 0% at or under $300K with residence intent). That's cash flow, not your final tax — file Form 8288-B before closing to cap withholding at the actual tax on your gain, or recover the excess on your 1040-NR. Long-term gains are taxed at 0/15/20%, recapture at up to 25%.
The Canadian side never went away
You report the same net rental income in CAD on your T1 and claim a foreign tax credit for the US tax. Your US property is specified foreign property — if your foreign property cost more than CAD $100,000, Form T1135 is due with your return ($25/day penalties if missed). And because Canada computes gains in CAD at historical exchange rates, currency movement alone can create a Canadian gain when you sell. We claim CCA to match US depreciation so the credits line up instead of stranding.
Sources: IRS — Nonresident aliens and US real property · CRA — Form T1135.
Common questions.
Do I really owe tax in both countries?
You file in both, but you rarely pay twice — the treaty credits US tax against Canadian tax on the same income. The pain comes from filing wrong, not from filing twice.
My property manager already withholds 30%. Is that fine?
It usually means you are massively overpaying. The net election plus W-8ECI stops the withholding and taxes you on actual profit — for leveraged properties, US tax often drops near zero in early years.
What happens to my estate if I die owning US property?
US-situs assets over US$60,000 trigger a 706-NA filing. With the 2026 US exemption at $15M and treaty proration, most Canadians owe no US estate tax — but the return must still be filed to claim it.
Related reading
Own US property? File it right from year one.
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