New Brunswick Landlord with Maine Rental Property

⚠️ Note (updated 2026-05-18, body text corrected) — §871(d) election mechanism and Bank of Canada rate corrected in body text below. Supplemental T1135 penalty note (point 3) remains accurate.

1. Section 871(d) election is NOT made via Form 8288-B. The §871(d) election (which converts your US rental income from FDAP — 30% flat withholding on gross rent with no deductions — to ECI, where you deduct expenses on Schedule E and pay tax on net) is made by attaching a written statement to your first Form 1040-NR. Separately, to stop the 30% withholding at source, you provide your property manager with Form W-8ECI (Certificate of Foreign Person's Claim That Income Is Effectively Connected). Form 8288-B is the FIRPTA Withholding Certificate used at SALE only — applied for 90+ days before closing to reduce the default 15% gross-price withholding on a property sale. The two forms apply to entirely different scenarios.

2. 2025 Bank of Canada annual average rate is 1.3978 CAD per USD (not 1.36). Apply consistently across all USD-to-CAD conversions on T776 and T1135.

3. T1135 penalty structure. Late filing: $25/day, max $2,500. Failure to file: up to $24,000/year. False statement or omission: 5% of unreported property cost with a $24,000 minimum penalty. Failing to file T1135 also extends CRA's reassessment period from 3 to 6 years for related tax years.

Tax Guide: New Brunswick Landlords with Maine Rental Property

Owning rental property in Maine as a New Brunswick resident creates a dual tax obligation. You'll report income and deductions to both the Canada Revenue Agency (CRA) and the US Internal Revenue Service (IRS), plus the State of Maine. Understanding this three-level structure—and the interaction between Canadian and US rules—is essential to avoid penalties and optimize your tax position.

This guide walks you through each jurisdiction's requirements, key forms, and timing.

Overview: Why This Combination Matters

New Brunswick and Maine are neighbours, making cross-border real estate investment common among Atlantic Canadian landlords. However, the tax treatment is complex because:

• Canada taxes worldwide income. You must report US rental income on your Canadian return, regardless of whether you file in the US.
• The US taxes non-residents on US-source rental income. Maine is a state income tax jurisdiction, so you'll file returns in two US jurisdictions (federal and state).
• Currency conversion applies. All US dollars earned must be converted to Canadian dollars at the Bank of Canada exchange rate for the year (2025: 1 USD = 1.3978 CAD average).
• Withholding tax complications. Without proper election, the IRS can withhold 30% of your gross rent; Maine can withhold 25% unless you file an NR6 form.
• Foreign tax credits reduce double taxation. You can claim US taxes paid as a credit against your Canadian tax liability.

Getting the structure right saves thousands in unnecessary withholding and penalties.

Canadian Tax Obligations (CRA)

Report All Income on Form T776

You must file Form T776 (Statement of Real Estate Rentals) with your Canadian personal tax return (T1 General). Report:

• Gross US rental income (converted to CAD at the Bank of Canada annual average rate for the year)
• All expenses (property tax, mortgage interest, insurance, utilities, repairs, management fees—also in CAD)
• Claim capital cost allowance (CCA) on the building if you choose (4% declining balance on 25% of building cost, excluding land)

Important: If you claim CCA, you may trigger a recapture of depreciation when you sell. Consider this before claiming.

File Form T1135 (Foreign Property Report)

If the fair market value of your Maine property exceeds CAD 100,000, you must file Form T1135 by the same deadline as your T1 General return (June 15 following the tax year, or October 15 if you file electronically).

List:

• Property type: Real property
• Location: Maine, USA
• Fair market value at December 31 (in CAD)
• Rental income earned (in CAD)

Failure to file T1135 carries a $2,500 penalty for individuals.

Claim Foreign Tax Credit

You'll pay tax to the IRS and possibly Maine. To avoid double taxation, claim a non-resident foreign tax credit on your Canadian return (line 40526 on Schedule 1):

• Calculate Canadian tax on the US income
• Claim the lower of: (a) US/Maine tax actually paid, or (b) Canadian tax on that income
• The credit reduces your Canadian tax dollar-for-dollar

This is the primary mechanism that prevents you from paying both full US and full Canadian tax.

US Federal Tax Obligations (IRS)

Obtain an ITIN

You cannot file a US tax return without a US tax identification number. As a Canadian non-resident, apply for an ITIN (Individual Taxpayer Identification Number) using:

• Form W-7 (Application for IRS Individual Identification Number)
• Mail to: IRS, ITIN Operations, Austin, TX 73301, USA
• Include a copy of your Canadian passport or birth certificate (notarized)
• Processing time: 4–6 weeks

Once issued (typically a 9-digit number starting with 9), use it on all US filings.

File Form 1040-NR (Nonresident Alien Return)

Filing requirement: You must file Form 1040-NR-EZ or Form 1040-NR if you have US rental income, regardless of income level.

When to file: April 15 following the tax year (same as US residents).

Where: IRS, Philadelphia, PA 19255-0006, USA.

Attach Schedule E (Profit or Loss from Rental Real Estate and Royalties):

• List the Maine property
• Report gross rental income
• Deduct all operating expenses (property tax, insurance, repairs, management, utilities, mortgage interest—but NOT principal)
• Report net rental income or loss

Report in USD. Do not convert to CAD for the US return.

Section 871(d) Election (Critical)

Without action, the IRS will withhold 30% of your gross rent as a default withholding for non-resident aliens. This is extremely inefficient because you lose deductions.

File Form 8288-B (Application for Withholding Certificate for Dispositions by Foreign Persons of US Real Property Interests) or attach a statement to your 1040-NR electing Section 871(d) treatment. This election allows you to:

• Report net rental income (after deductions) instead of gross
• Pay tax only on profit, not gross receipts
• Avoid the 30% withholding trap

Critical timing: File this election with your first US tax return or by April 15 following the first year of rental income.

Maine State Tax Obligations

Maine taxes non-resident rental income at 7.15% (the top state rate). You must file Maine Form 1040-NR (Maine Nonresident Income Tax Return).

Filing Requirements

• File if you have Maine-source income (rental property).
• Deadline: April 15 following the tax year (same as federal).
• Form: Maine Department of Revenue Services Form 1040-NR.

Property Tax Withholding (NR6)

If you don't file an NR6 form (Nonresident Beneficiary Declaration) with your property manager or tenant, Maine can require 25% withholding on gross rent at the source.

File NR6:

• Before rental payments begin
• With your property manager, tenant, or real estate agent
• Certifies that you're reporting the income and are current on taxes

Once filed, withholding is reduced or eliminated.

Carry-Forward of Losses

Maine allows non-residents to carry forward net losses from rental property to offset other Maine-source income, but the rules are restrictive. Consult with a Maine tax professional if you have losses.

Selling the Property: FIRPTA Basics

When you sell your Maine rental property, both the US and Canada treat the sale as a taxable disposition.

US FIRPTA Rules

FIRPTA (Foreign Investment in Real Property Tax Act) requires:

• The buyer withholds 15% of the sale price and remits it to the IRS (as of 2025).
• You must file Form 8288-B and Form 8288 (U.S. Withholding Tax Return for Disposition by Foreign Persons of US Real Property Interests) with the IRS.
• Capital gain = Sale price minus adjusted basis (original cost plus improvements, minus accumulated CCA).

Canadian Capital Gains

• Compute the gain in CAD (sale price in USD converted at the Bank of Canada rate for the closing date).
• Report 50% of the gain as taxable capital gain on your T1 return.
• You can claim a partial foreign tax credit for any FIRPTA withholding.

Timing Considerations

Plan the sale in a year with lower income to minimize the combined US/Maine/Canadian tax hit.

Estimate your FIRPTA withholding at sale: Use the FIRPTA Withholding Calculator to see how much the buyer must hold back at closing, and whether filing Form 8288-B in advance would reduce it.

Key Dates and Deadlines

| Obligation | Form(s) | Deadline | To Whom | |---|---|---|---| | CRA rental income report | T776 | June 15 (or Oct 15 if e-filed) | CRA | | CRA foreign property (if >$100k CAD) | T1135 | June 15 (or Oct 15 if e-filed) | CRA | | IRS federal return | 1040-NR + Schedule E | April 15 | IRS Philadelphia | | Section 871(d) election | Attach to 1040-NR or statement | April 15 (first year) | IRS | | ITIN application | Form W-7 | Anytime (4–6 weeks processing) | IRS Austin | | Maine state return | Form 1040-NR | April 15 | Maine