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United States / IRS

Should I hold my US rental property in an LLC as a Canadian?

Usually not, and this is the most expensive structuring mistake Canadians make buying US real estate. The two countries do not classify an LLC the same way: the US treats a single-member LLC as a disregarded entity so the income flows to you personally, while the CRA treats that same LLC as a corporation. Your foreign tax credits then have nothing to line up against.

Who this applies to: Canadian residents structuring ownership of US real estate.

Key facts
US treatment
Single-member LLC disregarded
CRA treatment
Corporation
Consequence
Foreign tax credit mismatch
Treaty
Art. IV(6) — partial relief only

How it works

The advice to use an LLC is usually sound — it is just being given by an American, to whom it applies correctly. Liability protection and pass-through treatment work cleanly for a US person and break at the border.

The practical result is that you have paid US tax personally on income that Canada regards as belonging to a corporation. The credit mechanism has no matching Canadian income to offset, and the same rent can end up taxed on both sides.

Article IV(6) of the Canada–US treaty provides partial relief for certain LLC income, but it does not cleanly resolve the rental case.

Where people get caught

This is very hard to unwind after closing. Restructuring US real estate held in the wrong entity can itself be a taxable event on one or both sides. The cheapest moment to get this right is before the purchase closes — which is exactly when nobody wants to pay for another advisor.

Source: Canada–US Tax Convention Article IV(6); CRA administrative position on the classification of US LLCs.

Related questions

I'm Canadian and buying a US rental. What am I missing on tax?
By default the IRS takes 30% of gross rents with no deductions. The §871(d) election moves you to a net basis.
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.
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.

Frequently asked questions

What do Canadians use instead of an LLC?
The common alternatives are personal ownership, a limited partnership, or a cross-border trust structure. Which fits depends on liability tolerance, how many properties you hold, and estate exposure — there is no single right answer, which is precisely why it warrants advice before closing.
I already bought through an LLC. What now?
Do not assume it is unfixable, but do not assume it is cheap either. Get a cross-border specialist to model the current position and the cost of restructuring, because unwinding can trigger tax on one or both sides.

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.