Tax was withheld on my gross US rent — can I claim expenses?
Only by electing to be taxed on a net basis and filing a US return. Left alone, the withholding applies to the gross rent, so mortgage interest, property taxes, insurance, management fees and repairs get no recognition at all and the amount taken bears little relation to what you actually earned. The election converts that flat charge into an ordinary computation of income less expenses. The trade-off is that the net computation also requires the building to be written down over time, which is not optional once you are on that footing, and those write-downs have consequences when the property is eventually sold.
Do I report US rental income on my Canadian return as well?
Yes. Canada taxes a resident on worldwide income, so the same rent appears on both returns, and relief for the US tax paid on it is claimed on the Canadian side. What surprises people is that the two computations do not produce the same number. The cost of the building is expressed in a different currency and converted on a different basis, the rules for writing it down over time are not the same in the two countries, and some expenses are treated differently. Expecting one figure to be copied across is the usual source of trouble in this file.
Is depreciation optional on a US rental return?
No, and this is the part most owners are not told. Once you are filing on a net basis, writing the building down over time is part of the computation rather than a choice, so it reduces the US tax now whether or not you want it to. The consequence arrives on sale: the US gain is computed after those write-downs, so it is larger than a straightforward price-minus-cost figure. Canada runs its own computation on its own cost base, so the two gains differ. Keeping a write-down schedule from the first year is what makes the eventual sale workable.
Why is my Canadian rental figure different from the US one?
Because they are two separate computations of the same rent. The building's cost is recorded in Canadian dollars on one side and in US dollars on the other, converted at a different point, so the starting figures already differ. The rules for writing the building down differ again, and one country requires it while the other treats it as a decision with consequences. Some expenses are deductible in one computation and restricted in the other. The two returns should reconcile to each other through a working paper that explains the differences, rather than produce one shared number.
I have rented out my Florida condo for years and never filed — what now?
Start by establishing what the position should have been in each year rather than what was withheld. That means the rent received, the expenses actually incurred, and a reconstructed schedule for writing the building down from the year it was first let. Purchase documents, closing statements and management reports carry most of what is needed. Late filings on a net basis are usually the route, oldest year first, because the write-down figures in each year depend on the ones before it. The Canadian side is then brought into line, with relief for the US tax claimed against the same income.
How do I avoid being taxed twice on the same rent?
The mechanism is relief on the Canadian return for the US tax paid on the US-source rent, and it works reasonably well once both computations are right. What breaks it is filing one side without the other, or leaving the US side on gross withholding so the tax paid there is far larger than the income the Canadian return recognises. Get the US return onto a net footing, compute the Canadian figure on its own cost base, and match the relief to the income it belongs to. Timing matters as well: the two filing years have to line up.
Do I pay tax when I inherit property abroad?
The inheritance itself is often not income to you, but three other things can create tax: the estate may owe tax where the deceased or the property was situated, some countries tax the recipient directly, and the gain from the date you inherit to the date you sell is yours. Reporting obligations can also attach to holding the asset. See inheriting property abroad.
Can I avoid capital gains tax on a foreign property?
Not by virtue of it being foreign — there is no exemption for that, and the "keep it offshore" advice you may have read is how people acquire penalties rather than savings. What genuinely reduces the gain is ordinary and legitimate: principal residence relief where the property qualifies and the designation is made correctly, a properly built cost base including acquisition costs and capital improvements, the timing of the disposition, the treaty rules for real property, and credit for the foreign tax paid. See principal residence and foreign property.
