Canadian with US rental property — rental income for foreigners: how much of this can I do myself?
Some of it, yes — and we will say so on the call if that is the honest answer. The parts that are worth paying for are the ones where a missed election, a missed deadline or an unverified threshold costs more than the fee: electing to be taxed on a net basis in the US converts flat gross withholding into a return that allows expenses and mandatory depreciation.
What if I have already filed and got it wrong?
That is a common starting point. We re-derive the position, identify whether an amendment or a disclosure route is the right vehicle, and tell you which one preserves the relief that is still available. The order matters more than the speed.
How long will it take?
It depends on the documents rather than on us. Once the pack is complete most filings turn around inside a fortnight; anything that needs a certificate from a tax authority runs on that authority's timetable, which we tell you at the start rather than at the end.
Why is my US property manager withholding tax on the gross rent?
Because that is the default for rent paid to a foreign owner. Without an election, US-source rent is taxed on a gross basis with no deduction for mortgage interest, property tax, insurance, repairs or management fees, and the withholding is applied to the rent cheque itself. On a property carrying a mortgage that will often exceed the whole of the profit. The alternative is to elect to be taxed on a net basis, which replaces the flat withholding with an obligation to file a return each year.
Can I deduct expenses against my US rental income as a Canadian?
Only if you elect to be taxed on a net basis. The election treats the rental as an activity connected with the United States, so the return allows operating expenses, mortgage interest, property taxes and depreciation against the rent, and tax is charged on what is left. It also brings a filing obligation, and it is not made casually: it applies to your US real property income generally and is not switched on and off from year to year to suit whichever result looks better.
Do I have to claim depreciation on my US rental property?
On a net-basis return it is not optional in the way a capital cost claim is in Canada. Depreciation reduces the US tax payable while the property is held, and it also reduces the basis you are treated as having when you sell, which increases the US gain at that point — and that reduction applies whether or not the deduction was actually claimed. So not claiming it means paying tax now and facing the same charge on sale later. The Canadian side runs on its own cost base and makes its own separate decision.
Do I report US rental income on my Canadian return as well?
Yes. A Canadian resident is taxed on worldwide income, so the rent is reported here too, computed under Canadian rules and in Canadian dollars, which will not be the figure the US return produces. Double taxation is relieved by a foreign tax credit for the US tax on that income, within the usual limits. Expect the two computations to differ: different expense rules, different treatment of capital cost, and a currency conversion applied to each item rather than to the bottom line.
How does US depreciation affect the tax when I sell the property?
It increases the US gain. Depreciation taken while the property was let reduces the basis carried into the sale, so the same sale price produces a larger taxable gain than the original cost would suggest, and part of that gain is taxed under rules of its own. It is not relief lost — it is relief taken earlier — but it does mean the tax at sale is larger than most owners expect. The Canadian computation of the same disposal follows its own cost base and currency and will not match.
Which exchange rate do I use for US rent on my Canadian return?
The Canadian computation is built item by item, not by converting the US bottom line. Rent is translated as it arises, expenses as they are incurred, and capital items at the rate when they were acquired, which is why the Canadian cost base of a US property often bears little relation to the US one. Keeping the records in both currencies from the start is far easier than reconstructing them later, particularly on a property held long enough for the exchange rate to have moved substantially.
Is US rental income taxed on the gross rent for foreigners?
By default, yes — and that is the trap. Rental income earned by foreigners with no US business is subject to withholding on the gross rent, with no deduction for mortgage interest, tax, insurance or depreciation. An election exists that moves the income onto a net basis so tax is paid on the actual profit, which for a leveraged property is frequently the difference between a tax bill and none. The election has conditions and timing of its own, so it is made deliberately rather than discovered later.
What is FIRPTA withholding?
FIRPTA is the US regime that treats a foreign person's disposition of a US real property interest as taxable and makes the buyer withhold on the gross proceeds to secure it. Because the deduction is on the price rather than the profit, it routinely exceeds the real tax — sometimes on a sale made at a loss. A withholding certificate applied for before closing can reduce it to something closer to the actual liability. See the FIRPTA withholding certificate.
