How to File Form 1040-NR for US Rental Income (Canadian Guide 2026)
Form 1040-NR is the US federal income tax return for non-resident aliens. If you live in Canada and rent out US property, you file 1040-NR with Schedule E attached every year — period. The IRS does not give Canadian residents a pass on US-source rental income.
Done right, 1040-NR with the Section 871(d) election lets you pay US tax only on net rental income (after deductible expenses) at graduated rates — typically 10-22%, not the headline-grabbing 30% gross withholding rate. Done wrong (skipped, late, or without the election), it costs thousands in unnecessary tax.
This guide walks through every step: the 871(d) election that unlocks expense deductions, the Schedule E line breakdown, getting your ITIN, filing deadlines, state returns where applicable, and the FIRPTA wrinkle that arrives at sale.
What Is Form 1040-NR?
Form 1040-NR is the IRS personal income tax return used by nonresident aliens with US-source income. For Canadian residents with US rental property, it is the equivalent of the form a US citizen would file as a 1040 — but with non-resident-specific schedules, rules, and attachments.
The core attachment for rental landlords is Schedule E (Form 1040), which reports gross rents, deductible expenses, and depreciation per property. Your net rental income flows from Schedule E into the 1040-NR itself, where it is taxed at graduated federal rates — provided you made the Section 871(d) election (covered below).
What 1040-NR is not: it is not a withholding return (that is Form 1042-S, filed by the payer). It is not a sale-of-property return (that is integrated with the year-end 1040-NR if you sold). It is not optional — every Canadian with US rental income owes the IRS a 1040-NR every year, even if the net income is zero.
Who Must File
You must file Form 1040-NR if you are a Canadian resident and any of the following apply during the tax year:
- You received US-source rental income from any US real property you own (residential or commercial). This is the trigger for most cross-border landlords.
- You sold US real property. The sale gets reported on Schedule D attached to the 1040-NR. FIRPTA withholding (15% of gross sale price) gets reconciled here against actual capital gains tax.
- You received other US-source income — dividends from US stocks, royalties, US-source business income, etc.
Even with zero net income, you still file. If your gross rents are $24,000 and your expenses are $24,000, your net is zero — but the IRS still requires the 1040-NR every year. Skipping it forfeits the Section 871(d) election (see next section), exposes you to 30% gross withholding under the default FDAP rules, and accumulates failure-to-file penalties.
What about US citizens or green card holders living in Canada? You file regular Form 1040 (not 1040-NR) because you are a US person for tax purposes regardless of where you live. The Schedule E mechanics are identical; different cover form.
The Section 871(d) Election — Without It, You Pay 30% on Gross
This is the single most important paragraph in the entire guide. Under the default IRS treatment, US-source rental income paid to non-residents is FDAP (Fixed, Determinable, Annual, Periodical) income, taxed at a flat 30% on gross rent with no deductions allowed. Your payer (tenant or property manager) is required to withhold the 30% at source and remit to the IRS.
On $24,000 gross rent, that is $7,200/year of US tax — vs maybe $500-1,500 if you could deduct expenses.
The fix: Section 871(d) election. By attaching a one-page statement to your first 1040-NR, you elect to treat your US rental income as Effectively Connected Income (ECI)— which means it gets taxed at graduated rates on net income after expenses, instead of FDAP's 30% on gross. The election sticks for all subsequent years unless you formally revoke it.
What the election statement says:a brief declaration that “all income from real property located in the United States is treated as income effectively connected with a US trade or business under IRC Section 871(d).” Your cross-border CPA prepares this — but confirm with them that it is filed on your first 1040-NR.
Notify your payer. Once the 871(d) election is on file, give your property manager Form W-8ECI(Certificate of Foreign Person's Claim of ECI). This lets them stop withholding 30% at source. Without W-8ECI, the manager is legally required to keep withholding regardless of your election — you would just recover the over-withholding via your 1040-NR filing.
Use our Section 871(d) Decision Tool to confirm the election makes sense for your situation. For almost every Canadian landlord with real expenses, it does.
Schedule E — Income and Expenses
Schedule E is where rental income and deductible expenses go. One Schedule E covers up to three properties; additional properties use additional Schedule Es. Key lines:
- Line 3 — Rents received. Gross rent collected during the calendar year (cash basis).
- Line 5 — Advertising
- Line 6 — Auto and travel (travel to inspect property where primary purpose is rental)
- Line 7 — Cleaning and maintenance
- Line 9 — Insurance
- Line 10 — Legal and other professional fees
- Line 11 — Management fees
- Line 12 — Mortgage interest paid to banks, etc. (interest only — not principal)
- Line 14 — Repairs (current expenses, not capital improvements)
- Line 15 — Supplies
- Line 16 — Taxes (property taxes paid)
- Line 17 — Utilities (where landlord pays the utility directly)
- Line 18 — Depreciation (typically 27.5 years straight-line on residential building portion only, not land)
- Line 19 — Other (HOA fees, permit fees, etc.)
- Line 21 — Total expenses
- Line 26 — Net rental income (line 3 minus line 21, then adjusted for any depreciation/limitations). This flows to 1040-NR.
See our Schedule E Calculator to estimate your net before filling out the real form. For a full breakdown including the mortgage-interest split and depreciation mechanics, see our Canadian Owning US Rental Property Complete Guide.
Getting an ITIN — You Need One
Form 1040-NR requires a US tax identification number. As a non-resident with no SSN, that means an ITIN (Individual Taxpayer Identification Number) — applied for via Form W-7.
How to apply:
- With your first 1040-NR. The standard method. Submit W-7 alongside the completed 1040-NR plus certified copy of your passport (or other accepted identification). The IRS processes both together and assigns your ITIN before processing the return.
- Via a Certifying Acceptance Agent (CAA). Many cross-border CPAs are CAAs and can certify your passport themselves, eliminating the need to mail your physical passport to the IRS. Recommended approach — your passport never leaves Canada.
- At an IRS Taxpayer Assistance Center in the US (impractical for most non-residents).
Processing time: 7-11 weeks for ITIN issuance, longer during tax season peak. Apply early in the year so your ITIN is in place before the 1040-NR deadline.
ITINs expire if not used on a US tax return for 3 consecutive years. If you have a gap in rental income or otherwise do not file, your ITIN may need renewal.
Filing Deadline and Extensions
Two deadline scenarios apply to non-resident filers:
- April 15 — if you have wages or other compensation subject to US withholding. This is the standard deadline most US-side guides cite.
- June 15 — automatic 2-month extension if your only US income is not subject to wage withholding. Most Canadian landlords with only rental income fall here.
Further extension to October 15 available with Form 4868, filed by the original deadline. Form 4868 extends the filing time but not the payment time — any tax owed accrues interest and may incur late-payment penalties from the original due date.
If you owe US tax: pay by April 15 even if you are filing on June 15 or extending. Interest accrues from April 15 regardless of the filing deadline that applies to you.
If you are getting a refund: no penalty for filing late, but the refund obviously waits. Most cross-border landlords with NR6 / Section 216 mechanics on the Canadian side want their 1040-NR done in March-April anyway to populate the Canadian foreign tax credit before April 30.
Where to File, How to Pay, and State Returns
Where to mail 1040-NR:
- If you owe tax or expect a refund, mail to the appropriate Department of the Treasury / Internal Revenue Service address listed in the current 1040-NR instructions. Addresses vary by year and whether payment is enclosed — always check the current-year instructions.
How to pay: electronic funds withdrawal (direct debit from your US or international bank), IRS Direct Pay (US bank only), credit/debit card via approved processors (with processing fees), or mailed check/money order with the return. International wire transfer is possible but complex — most Canadian filers either get a US bank account or use a CPA who handles payment intake.
E-filing. 1040-NR can be e-filed through most commercial tax software that supports non-resident returns. Not every software handles 1040-NR — TurboTax does not directly support it, though Sprintax and a few others do. Most cross-border CPAs e-file 1040-NR through professional tax software.
State returns. If your US rental is in a state with personal income tax (Arizona 2.5%, California up to 9.3%, New York up to 6.85%, etc.), you also file the relevant state non-resident return — typically with state tax forms that mirror the federal Schedule E. See our state-specific guides: Florida (no state income tax), Arizona (flat 2.5%).
FIRPTA at sale. When you eventually sell the property, the buyer withholds 15% of gross sale price under FIRPTA and remits to the IRS. The 1040-NR for the year of sale reconciles this against your actual capital gains tax — usually generating a substantial refund. See our FIRPTA Complete Guide for Canadian Sellers.
Common 1040-NR Mistakes
What costs the most money:
- Not filing at all. Some landlords assume the IRS does not apply because they live in Canada. It does. Skipping 1040-NR forfeits the 871(d) election, exposes you to 30% gross withholding under FDAP, and accumulates failure-to-file penalties.
- Missing the Section 871(d) election. Without it, the IRS treats rent as FDAP and applies 30% gross withholding. With it, you deduct expenses and pay tax on net income at graduated rates — usually one-third to one-half of the FDAP amount.
- Not giving payer Form W-8ECI. Even with 871(d) elected, your property manager keeps withholding 30% until you give them W-8ECI. You will recover the over-withholding through 1040-NR, but the cash sits with the IRS in the meantime.
- Wrong Schedule E line for an expense. Mortgage interest on line 12, not line 14. Property tax on line 16, not 11. Audit risk is highest when lines do not match expense categories per published IRS guidance.
- Claiming principal as mortgage interest. Only the interest portion of mortgage payments is deductible. Your year-end statement from the lender splits the two.
- Forgetting state return. Federal 1040-NR is not the end of the line. State returns are required in every state with personal income tax for non-residents earning state-source income.
- Filing without an ITIN. Submit W-7 with your first 1040-NR if you do not already have an ITIN. The IRS rejects 1040-NR filings without a valid TIN.