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United States / IRS

I'm Canadian and buying a US rental. What am I missing on tax?

The default treatment. Without an election, your US rental income is FDAP and subject to 30% withholding on gross rents — no deductions at all, not mortgage interest, not property tax, not management fees, not depreciation. The fix is the IRC §871(d) election, which treats the income as effectively connected so you are taxed on net at graduated rates and file a Form 1040-NR with Schedule E.

Who this applies to: Canadian residents (non-resident aliens) buying US rental property.

Key facts
Default
30% of gross rents (FDAP)
Election
IRC §871(d) — net basis
Return
Form 1040-NR with Schedule E
Stops withholding
Form W-8ECI to your agent

How it works

Almost every individual owner should make the election — being taxed on 30% of the top line rather than on actual profit is rarely the better outcome.

The election is made by attaching a statement to your return. Once made it applies to later years as well, and revoking it requires IRS consent, so treat it as a real decision rather than an annual toggle.

You will need an ITIN before any of this works. Apply early; it takes longer than most people expect and nothing can be filed without it.

Where people get caught

Making the election does not by itself stop withholding at source. Your property manager keeps withholding 30% until you give them a Form W-8ECI. People routinely make the election, file correctly, and still watch 30% leave every month for a year while they wait on a refund they did not need to be owed.

Source: IRC §871(d); IRS guidance on effectively connected income and Form W-8ECI.

Terms used here

Schedule E1040-NRW-8ECIITIN

Related questions

Should I hold my US rental property in an LLC as a Canadian?
Usually not. The US disregards a single-member LLC; the CRA treats it as a corporation. The mismatch can produce double taxation.
Do US state taxes apply to my rental as a non-resident?
Often yes, and it varies enough to be worth factoring into where you buy. Florida and Texas have no personal income tax.
What happens to my money when I sell my US rental as a non-resident?
FIRPTA. The buyer withholds 15% of the gross sale price — not the gain — unless you get a withholding certificate first.

Frequently asked questions

Can I make the §871(d) election late?
The election is made with a return, so it is generally made when you file for the year in question. Because it applies to subsequent years once made, getting it right at the outset matters more than with most annual choices — this is worth confirming with a cross-border specialist for your facts.
Do I still report the US rental in Canada?
Yes. As a Canadian resident you are taxed on worldwide income, so the US rental is also reported in Canada, with a foreign tax credit intended to prevent double taxation. Getting the two returns to line up is the actual work.

This is general information, not tax or legal advice. Rules change and your situation is specific — verify with the CRA or IRS, or with a cross-border advisor, before acting. ← All answers

BorderBird helps cross-border landlords track rent and prepare CRA NR4 and IRS Schedule E filings — see how it works.