New Brunswick Landlord with Nevada 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.

US Rental Property Tax Guide for New Brunswick Landlords: Nevada Edition

Owning rental property in Nevada as a Canadian resident creates a unique tax situation—and a valuable opportunity. Nevada's complete absence of state income tax combined with relatively modest property taxes makes it an attractive investment for Canadian landlords. However, this advantage only materializes when you understand and properly manage your obligations to both the Canada Revenue Agency (CRA) and the US Internal Revenue Service (IRS).

This guide walks you through the specific tax landscape for New Brunswick residents holding Nevada rental property, with concrete form numbers, rates, and deadlines.

Why Nevada Is Different for Cross-Border Landlords

Nevada stands apart from most US states because it imposes no state income tax. This means you will not file a Nevada state return, and you will not pay state tax on your rental income. Your total rental income tax burden will be limited to:

• Canadian federal income tax (through the CRA)
• Canadian provincial income tax (New Brunswick)
• US federal income tax (through the IRS)

For comparison, landlords owning property in states like California or New York face combined federal, state, and local tax rates that can exceed 50%. Nevada's lack of state income tax can reduce your overall tax liability significantly—but only if you structure your filings correctly and claim available credits.

CRA Obligations: Reporting US Rental Income

Filing Form T776 (Rental Income)

Every year, you must report your worldwide rental income to the CRA, including income earned from your Nevada property. You will file Form T776: Statement of Real Estate Rentals as part of your personal T1 return.

On Form T776, you report:

• Gross rent received (converted to CAD using the Bank of Canada annual average exchange rate: 1 USD = 1.3978 CAD for 2025)
• Allowable expenses (mortgage interest, property tax, insurance, repairs, property management fees, utilities you pay, etc.)
• Capital cost allowance (CCA) if you choose to claim depreciation

Important: You cannot deduct US federal or state income tax you pay on the property as an expense on Form T776. However, you can claim those taxes as a foreign tax credit (see below).

Form T1135: Foreign Property Reporting

If the fair market value of your Nevada property exceeds CAD $100,000 at any time during the tax year, you must file Form T1135: Foreign Income Verification Statement.

This form requires you to report:

• The address and description of the property
• The country where it is located
• The adjusted cost basis (your original purchase price plus capital improvements)
• The fair market value in Canadian dollars (using Bank of Canada year-end exchange rates)

Deadline: Form T1135 must be filed with your T1 return by June 15 of the following year (though if you file by April 30, you should include it then).

Penalty for late or missing T1135: $25 per day, up to $2,500 per form, plus potential reassessment of your entire return.

Claiming a Foreign Tax Credit

This is where Nevada's tax advantage becomes important. You will pay US federal income tax on your net rental income. You can claim this tax as a non-business income tax credit on Schedule 1 of your T1 return.

How it works:

1. Calculate your net rental income on Form T776 (gross rent minus Canadian-deductible expenses)
2. Convert this to CAD using the Bank of Canada annual average exchange rate
3. Calculate US federal income tax owing on that income (using the US tax brackets for non-resident aliens)
4. Claim the US federal tax you actually paid as a credit against your Canadian federal tax

This credit ensures you do not pay tax twice on the same income. Since Nevada has no state income tax, you will not have a Nevada state tax credit to claim.

IRS Obligations: US Federal Reporting

Obtaining an ITIN

Before you can file a US tax return on your Nevada rental income, you must obtain an Individual Taxpayer Identification Number (ITIN). This is a nine-digit number issued by the IRS to non-US citizens and non-permanent residents who must file US tax returns.

How to apply:

• Complete Form W-7: Application for IRS Individual Taxpayer Identification Number
• Include a certified copy of your passport or other identity document
• Mail to the IRS address specified on the form, or apply through an IRS-authorized agent in Canada
• Processing time: 6–11 weeks
• Cost: Free

Once you receive your ITIN, keep it for all future US returns.

Filing Form 1040-NR

As a non-resident alien with US rental income, you must file Form 1040-NR: U.S. Nonresident Alien Income Tax Return with the IRS each year.

On Form 1040-NR, you will:

• Report your Nevada rental income on Schedule E (Supplemental Income and Loss)
• Claim rental expenses (same expenses deductible in Canada: mortgage interest, property tax, insurance, repairs, depreciation, etc.)
• Calculate your net taxable rental income
• Pay US federal income tax at graduated rates (currently 10%, 12%, 22%, 24%, 32%, 35%, 37% depending on income level)

Key point: The US taxes net income, not gross rent. This is different from Part XIII withholding (see below).

Schedule E: The Rental Income Schedule

On Schedule E, you report:

• Property address and location code
• Rents received (in USD, not CAD)
• Rental expenses (itemized)
• Depreciation (if claimed)
• Net income or loss

The IRS allows you to deduct all ordinary and necessary business expenses, including:

• Mortgage interest (but not principal)
• Property tax
• Insurance
• Repairs and maintenance
• Property management fees
• HOA fees
• Utilities you pay
• Advertising and tenant-finding costs
• Legal and accounting fees
• Depreciation (Section 168)

You cannot deduct:

• Canadian provincial or federal income tax
• Personal capital gains tax
• Loan principal payments

The Section 871(d) Election

This is a critical strategy for Nevada rental property owners.

Without this election, the IRS would treat your rental income as "fixed, determinable, annual or periodical" (FDAP) income and impose a 30% gross withholding tax on all rent you receive. This means the IRS would claim 30% before you even factor in deductions.

Section 871(d) election allows you to elect to have your rental income taxed as "effectively connected income" (ECI)—meaning you pay tax only on your net income (gross rent minus expenses), using graduated tax rates instead of a flat 30%.

How to make the election:

• File a statement with your first Form 1040-NR attached to a timely filed return (including extensions)
• The statement should say: "The taxpayer elects under Section 871(d) to be taxed on a net basis on income from real property."
• Once made, the election applies to all future years unless you revoke it in writing

Impact: The Section 871(d) election typically saves New Brunswick landlords thousands of dollars per year by allowing you to deduct expenses and use graduated tax rates rather than paying 30% on gross rent.

Form W-8IMY or W-9

You may receive tax forms from your property manager, title company, or mortgage lender. If you have an ITIN, you should provide a Form W-8IMY (Certificate of Foreign Intermediary Status) or Form W-8BEN (Certificate of Beneficial Owner Status for US Tax Withholding) to document your non-resident status and ITIN. Do not sign a W-9 (which is for US citizens and permanent residents only).

Part XIII Withholding: A Canadian Obligation

Here is where cross-border coordination matters. The CRA also has a withholding regime for rent paid to non-residents.

Part XIII withholding: If you do not file Form NR6 (Undertaking – Section 216) with the CRA, the person paying you rent (your property manager or tenant) is required to withhold 25% of gross rent and remit it to the CRA.

How to avoid unnecessary withholding:

1. Complete Form NR6: Undertaking – Subsection 216(4)
2. File it with the CRA at least 60 days before rent is paid
3. In the form, you undertake to file a Canadian tax return reporting the rental income and pay any tax owing
4. Once CRA approves your NR6, the 25% withholding is eliminated

Important: Filing an NR6 does not eliminate your

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.