New Brunswick Landlord with Maryland 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.

Cross-Border US Rental Property Taxation: A New Brunswick Landlord's Guide

As a New Brunswick resident who owns rental property in Maryland, you live in one country, work in another, and report income to two tax authorities. This creates a dual-filing obligation that, if mismanaged, can result in significant penalties and double taxation. This guide walks you through your Canadian and US tax responsibilities, the forms you'll need, and the deadlines that matter.

Why New Brunswick + Maryland Creates Complexity

Maryland residents pay state income tax on all income, including that earned by non-residents who own Maryland property. As a Canadian resident, you don't qualify for Maryland resident treatment, so Maryland considers you a non-resident landlord. This triggers:

• US federal income tax on your net rental income
• Maryland state income tax on your gross rental income at 5.75%
• Canadian federal and provincial tax on worldwide income (including the Maryland rental)
• Part XIII withholding from Canada if you don't file the right forms
• US withholding on rents if you don't make a valid election

The key to managing this is understanding that Canada taxes on a net basis (revenue minus deductible expenses) while the US default approach taxes on a gross basis—unless you make an election to be taxed on net income instead.

Your Canadian Tax Obligations

Filing the T776 (Rental Income Form)

You must report all rental income from Maryland property on your annual Canadian tax return. The Canada Revenue Agency (CRA) requires you to file Form T776: Statement of Real Estate Rentals with your personal tax return.

On the T776, report:

• Gross rents received in Canadian dollars
• Deductible expenses (mortgage interest, property tax, insurance, repairs, utilities you pay, property management fees, advertising, accounting)
• Net rental income or loss

Convert all USD amounts to CAD using the Bank of Canada's annual average exchange rate. For the 2024 tax year (filed in 2025), the CRA typically uses the prior year's average rate. Use 1 USD = 1.3978 CAD for 2024 income.

Form T1135: Foreign Property Reporting

If the fair market value of your Maryland property exceeds CAD $100,000 at any point during the tax year, you must file Form T1135: Foreign Income Verification Statement. This form simply tells CRA that you own foreign property. Failure to file can result in a $2,500 penalty per year.

Part XIII Withholding

Here's where many Canadian landlords get caught off guard. If you don't file the correct form with the CRA, the US tenant's employer or the property tenant may be required to withhold 25% of gross rents and send it to the CRA under Part XIII withholding rules. This is effectively a security deposit against your Canadian tax liability.

To avoid Part XIII withholding, file Form NR6 (Non-Resident Withholding Tax Exemption Certificate) with the CRA before rents are paid. This form certifies that you'll file a Canadian tax return and pay any tax owing. Once issued, the 25% withholding is waived.

Foreign Tax Credit (FTC)

You cannot pay tax twice on the same income. Canada allows a foreign tax credit for income tax paid to the US. On your Canadian return (Schedule 1), claim the US federal and Maryland state income tax you actually paid as a credit against your Canadian tax.

How to calculate: Determine your US tax liability (federal + Maryland state), convert to CAD, and claim on line 40600 of your Canadian return.

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Your US Federal Tax Obligations

Obtain an ITIN

You cannot use your Canadian Social Insurance Number (SIN) to file US tax returns. You need an Individual Taxpayer Identification Number (ITIN). Apply using Form W-7: Application for IRS Individual Identification Number. Processing takes 6–12 weeks. Once obtained, use this ITIN on all US tax filings.

File Form 1040-NR (Non-Resident Alien Return)

Non-resident aliens with US-source rental income must file Form 1040-NR: Non-Resident Alien Income Tax Return. This return is filed with the IRS (not state), but Maryland requires a corresponding state return (see next section).

On Form 1040-NR:

• Report gross rental income on line 5 (rental real estate, royalties, partnerships, S corporations, and trusts income)
• Report deductible expenses on Schedule E (Part I: Rental Real Estate Income and Loss)
• Calculate net rental income
• Apply the Section 871(d) election (see below)

Schedule E: Deductible Rental Expenses

Complete Schedule E (Form 1040) to detail your expenses:

• Mortgage interest
• Property tax
• Insurance
• Repairs and maintenance
• Utilities
• Advertising (if applicable)
• Property management fees
• Depreciation (if you elect cost recovery)

Do not claim the standard deduction (non-residents cannot). You'll be taxed on your net rental income after these expenses.

Section 871(d) Election (Critical)

The default US rule withholds 30% of gross rents on non-resident rental income. This is severe and is meant to be temporary security.

To avoid this, file an election under Section 871(d) on your Form 1040-NR. This election allows you to be taxed on net rental income (after deductions) instead of gross rents, and reduces your withholding to approximately 15% federal (or less, depending on your actual tax liability).

How to make the election: Attach a statement to your 1040-NR (or include in your return) stating: "The taxpayer elects under IRC Section 871(d) to be taxed on net income from real property located in the United States."

Once filed, your property is treated as "effectively connected income" (ECI), and you benefit from the full deduction of expenses.

Filing Deadline and ITIN Numbers

File Form 1040-NR by June 15, 2025 for the 2024 tax year (non-residents get a later deadline than US citizens). If you need to request an extension, file Form 4868.

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Your Maryland State Tax Obligations

Maryland imposes a 5.75% state income tax on all income derived from Maryland sources, regardless of residency. Non-resident landlords must file Maryland Form 505: Non-Resident Income Tax Return.

What You Report on Maryland Form 505

• Gross rents from Maryland property
• Deductible expenses (same as your federal return)
• Net Maryland taxable income
• Calculate tax at 5.75%

The Maryland filing deadline is typically April 15 (same as federal). If you file Form 4868 with the IRS, your Maryland return is also extended to October 15.

Maryland Property Tax

On top of income tax, Maryland charges property tax on real estate. The average effective rate is 1.09% of assessed value. This is paid annually to the county assessor (in your case, the Maryland county where the property is located) and is deductible on both your US and Canadian returns.

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Selling Your Maryland Property: FIRPTA

When you eventually sell the property, the Foreign Investment in Real Property Tax Act (FIRPTA) requires that 15% of the sale price be withheld and remitted to the IRS. This is done by the buyer's escrow agent.

You'll report the sale on Form 1040-NR in the year of sale, calculate your gain, and any additional tax owed will be offset against the 15% withheld.

Plan for this withholding in your cash flow; it's not a prepayment of tax but rather security that you'll file and pay correctly.

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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 | Deadline (2024 tax year) | To Whom | |---|---|---|---| | Federal US return | 1040-NR | June 15, 2025 | IRS | | Maryland state return | Form 505 | April 15, 2025 | Maryland Comptroller | | Canadian return | T776, T1135 | June 15, 2025 | CRA | | Property tax (Maryland) | County bill | Varies by county | County assessor | | ITIN application (if new) | W-7 | Anytime (6–12 weeks processing) | IRS |

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Key Takeaways for New Brunswick Landlords

• File in three places: Complete T776 and T1135 with the CRA, Form