Owning a U.S. Rental Property as a Canadian Resident
The U.S. taxes the property first because it sits there. Canada taxes you on it too, as part of your worldwide income, and credits the U.S. tax. The two countries calculate depreciation and capital gains differently, and in different currencies, so the numbers on your two returns rarely match.
What you file every year
United States: Form 1040-NR – net rental income after expenses and depreciation, due June 15.
Canada: T1 + T776 – rental income in C$, credit for U.S. tax, due April 30.
Renting it out: the U.S. side each year
By default, the U.S. takes 30% of your gross rent, with no deductions for expenses. Almost every Canadian owner avoids this by electing to be taxed on net rental income.
Net income election (Section 871(d)): Attach a statement to your first Form 1040-NR electing to treat the rent as business income. You then pay normal graduated rates on rent minus property tax, mortgage interest, insurance, repairs, management fees and depreciation. Many rentals show little or no taxable income. The election carries forward to future years.
Stop the withholding (W-8ECI, W-7): Give your property manager or tenant Form W-8ECI so they stop withholding 30%. You'll need an ITIN, applied for on Form W-7 with your first return.
File every year (June 15): Once you've made the election, you file Form 1040-NR each year, even in a year with a loss.
State tax: Most states tax rental income from property there. Florida, Texas, Nevada and Washington have no personal income tax; Arizona, California and Hawaii do.
Depreciation: U.S. vs. Canada
U.S. depreciation is effectively mandatory, while Canadian capital cost allowance (CCA) is optional. Both apply only to the building, never the land.
Called: U.S. – Depreciation. Canada – Capital cost allowance (CCA).
Claimed on: U.S. – Building, improvements, appliances; not land. Canada – Building, improvements, appliances; not land.
Building rate: U.S. – 27.5 years straight line (about 3.64% a year). Canada – 4% a year, declining balance (Class 1).
First year: U.S. – Prorated by the month you start renting. Canada – Half the normal claim (half-year rule).
Must you claim it? U.S. – In effect, yes. Your cost is reduced by depreciation you could have claimed, even if you didn't. Canada – No. Claim any amount from zero to the maximum.
Can it create a loss? U.S. – Yes, though losses may be limited and carried forward. Canada – No, it can only reduce rental income to zero.
Currency: U.S. – U.S. dollars. Canada – Canadian dollars, at the rate when you bought.
When you sell: U.S. – Taxed at up to 25% (unrecaptured section 1250 gain). Canada – CCA claimed comes back as fully taxable recapture.
Most owners claim full depreciation in the U.S. and think carefully about CCA in Canada. Skipping CCA means more Canadian tax on the rent each year, but avoids a fully taxable recapture when you sell.
Reporting in Canada each year
You report the rental on Form T776 with your T1, the same form used for a rental in Canada.
Currency: Convert rent and expenses at the Bank of Canada rate on each date, or at the annual average rate. Use the same method every year.
Foreign tax credit (T2209): Claim a credit for U.S. federal and state tax paid on the rental income, limited to the Canadian tax on that income. Because U.S. depreciation often wipes out U.S. tax on the rent, the credit in the rental years is often small.
Foreign property report (T1135): A U.S. rental is specified foreign property. If its cost, with your other foreign assets, is more than $100,000 CAD, file Form T1135. The penalty is $25 a day, up to $2,500 a year.
Selling: the U.S. side
At closing, the buyer must withhold 15% of the full sale price under FIRPTA and send it to the IRS. It's a prepayment, credited on your 1040-NR.
Lower FIRPTA rates: When the buyer will live in the home: 10% if the price is $1 million or less, and none if it's $300,000 or less.
Reduce it with Form 8288-B: Apply for a withholding certificate before closing so the IRS approves withholding closer to your actual tax.
The U.S. formula: Sale price − selling costs − (cost + improvements − depreciation) = U.S. gain
The part of the gain equal to your depreciation is taxed at up to 25%. The rest is a long-term capital gain at 0%, 15% or 20% if you held the property more than a year. The 3.8% net investment income tax doesn't apply to non-residents. States with income tax add their own tax. Report the sale on Form 4797 and Schedule D, and attach the buyer's Form 8288-A to claim the withholding.
Selling: the Canadian side
Everything is in Canadian dollars at two different rates: purchase cost at the rate on the purchase date, sale price at the rate on the sale date.
The Canadian formula: Sale price × sale-date rate − cost × purchase-date rate = C$ gain → 50% taxable
Currency gain: A property that barely moved in U.S. dollars can show a large Canadian gain if the U.S. dollar strengthened, or a loss if it weakened.
No U.S. depreciation: Unlike the U.S., Canada doesn't reduce your cost by U.S. depreciation. Half of the gain is taxable.
CCA recapture or terminal loss: Any CCA claimed comes back into income in full, up to original cost. If the building sells for less than its remaining CCA balance, the shortfall is a deductible terminal loss.
Foreign tax credit (T2209): Claim a credit for U.S. federal and state tax on the sale, limited to the Canadian tax on the same gain. The treaty gives the U.S. first right to tax U.S. real estate.
No principal residence exemption: A property held for rent doesn't qualify. If you also used it yourself, talk to us before selling.
Worked example: a Florida condo
Priya, a B.C. resident, bought a Florida condo in 2016 for US$400,000 (US$80,000 land, US$320,000 building) when US$1 cost C$1.30. She rented it for 10 years, claimed about US$116,000 of U.S. depreciation and no CCA. In 2026 she sells for US$600,000, when US$1 costs C$1.37. Florida has no state income tax.
United States (US$)
Sale price: 600,000
Cost: 400,000
Less depreciation: −116,000
Adjusted cost: 284,000
Gain: 316,000
How it's taxed: 116,000 at up to 25%; 200,000 at 15%
Approximate tax: ≈ 50,000 (≈ C$68,500)
After foreign tax credit: paid in full to the IRS
Canada (C$)
Sale price: 822,000 (at 1.37)
Cost: 520,000 (at 1.30)
Less depreciation: not deducted
Adjusted cost: 520,000
Gain: 302,000
How it's taxed: Half taxable: 151,000
Approximate tax: ≈ 80,800 (at 53.5%)
After foreign tax credit: ≈ 12,300 owing
The takeaway: Priya pays roughly C$80,800 in total, about what the higher-taxing country charges. The foreign tax credit stops double tax, but you still pay whichever country's tax is higher.
Figures are rounded and illustrative. They ignore closing costs, other income and exact brackets.
Your forms checklist
Once
W-7 (U.S.): Apply for an ITIN, usually with your first return.
W-8ECI (U.S.): Given to the tenant or manager to stop 30% withholding.
Every year
1040-NR (U.S.): Net rental income, with the election statement; due June 15.
State return (U.S.): Only in states with income tax.
T1 + T776 (Canada): Rental income in Canadian dollars; due April 30.
T2209 (Canada): Credit for U.S. tax paid.
T1135 (Canada): If foreign property costs over $100,000 CAD.
On sale
8288-B (U.S.): Optional request to reduce the 15% FIRPTA withholding.
4797 + Sch. D (U.S.): Reports the gain on your 1040-NR and claims the withholding.
Sch. 3 + T2209 (Canada): Reports the capital gain and claims the U.S. credit.
Planning tips and common mistakes
Not making the net income election. Without it, you pay 30% of gross rent, even in a year the property loses money.
Skipping U.S. depreciation. Your cost is reduced anyway, so you lose the yearly deduction and still pay more on sale.
Using one exchange rate for everything. Canada needs the purchase-date rate for cost and the sale-date rate for proceeds.
Forgetting Form T1135. The penalty applies even when no tax is owed.
Buying through a U.S. LLC. The IRS sees it as transparent, the CRA as a corporation, which can cause double tax.
Joint owners filing as one. Each owner needs an ITIN and files a 1040-NR for their share.
Losing the paperwork. Keep closing statements, improvement receipts, and depreciation and CCA schedules.
Ignoring U.S. estate tax. The treaty credit protects most owners, but larger U.S. holdings are worth a review.
Talk to Icantax
We prepare your 1040-NR, state returns and Canadian T1 together, apply for FIRPTA withholding certificates, and run the numbers on CCA and your sale in both countries, well before you list.
Call 604-496-2200 or email info@icantax.ca — Unit 110 - 13575 107A Avenue, Surrey, B.C.
General information, not tax advice for your situation.Content coming soon.
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