Ontario Landlord with Ohio Rental Property
A complete guide to your CRA and IRS obligations as a Ontario resident who owns rental property in Ohio.
⚠️ Important Disclaimer
This content is for informational purposes only and does not constitute legal, tax, or financial advice. Tax laws change frequently — always verify with the CRA and IRS or consult a qualified cross-border tax accountant before making decisions.
⚠️ 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 Ownership for Ontario Residents: A Complete Tax Guide
If you own rental property in Ohio as an Ontario resident, you're navigating two tax systems simultaneously. The US federal government, the state of Ohio, and Canada's CRA all have claims on your rental income and may tax you on the same dollars. Understanding these overlapping obligations is essential to avoid penalties, optimize deductions, and minimize your total tax burden.
This guide walks you through the Canadian and US tax requirements you must meet, the deadlines you cannot miss, and the strategies that can reduce your tax liability across both jurisdictions.
Why Ontario-to-Ohio Rental Income Creates Complexity
When you own rental property in Ohio, you trigger tax obligations in three directions:
Canada (CRA) treats worldwide income as taxable, including US rental property. You must report gross rental income in Canadian dollars and can claim eligible expenses to reduce taxable income.
The United States (IRS) taxes non-resident aliens on US-source rental income at rates up to 30% unless you make a specific election. Ohio additionally imposes a state income tax.
Ohio requires non-residents with Ohio-source income to file a state return and pay state income tax at a flat rate of 3.99%, plus you'll owe property tax (averaging 1.59% of property value annually).
The result: without proper planning and filing, you could owe tax in all three jurisdictions on the same income, with limited relief mechanisms available.
Your Canadian Tax Obligations
Reporting Rental Income to the CRA
You must report all US rental income on your Canadian personal tax return, converted to Canadian dollars at the Bank of Canada annual average exchange rate. For 2025, use 1 USD = 1.3978 CAD for the full year (unless the CRA updates this rate; verify at time of filing).
Form T776 (Statement of Real Estate Rentals) is your primary reporting document. On this form, you'll report:
- Gross rental income (converted to CAD)
- Operating expenses (mortgage interest, property tax, insurance, repairs, property management fees, utilities you cover, advertising for tenants)
- Capital cost allowance (CCA) if you choose to claim depreciation
- Mortgage principal payments (not deductible)
Key point: Report gross rent first, then deduct only eligible expenses. Non-deductible items include capital improvements, mortgage principal, and personal-use expenses.
Form T1135: Foreign Investment Property
Because your Ohio property is a foreign investment, you must file Form T1135 if the total cost amount of your foreign property exceeds CAD $100,000 in any year.
On Form T1135, report:
- Cost amount of the property (in CAD)
- Gross income generated
- Adjusted cost basis
Failure to file T1135 when required results in a $2,500 penalty (or $8,000 if a subsequent violation occurs within 24 months).
Foreign Tax Credit
You'll pay tax to both Canada and the US on the same income. The CRA allows a foreign tax credit to reduce this double taxation, but only for taxes paid to the US federal government and Ohio state government that are creditable under Canadian law.
You can claim the foreign tax credit on Schedule 1 (Line 40500) of your personal tax return. The credit is limited to the lesser of:
- Foreign tax paid, or
- The Canadian tax on that foreign income
Example scenario: If you pay USD $5,000 in combined US federal and Ohio state tax on USD $30,000 of net rental income, and this generates CAD $6,800 in Canadian tax before the credit, you can claim the foreign tax credit to reduce that Canadian tax. However, if your combined US tax is only CAD $3,000 (at 1.3978 conversion), your credit is capped at CAD $3,000.
Your US Federal Tax Obligations
Get an ITIN Before Filing
Non-US citizens who have no Social Security Number must obtain an Individual Taxpayer Identification Number (ITIN) from the IRS. Apply on Form W-7 through a participating bank or CPA. Processing takes 4–8 weeks, so apply early in the tax year.
Your ITIN allows you to file US tax returns and claim deductions. Without one, the IRS can treat you as having no identification and withhold at the default 30% rate on your rental income.
File Form 1040-NR
Non-residents must file Form 1040-NR (U.S. Nonresident Alien Income Tax Return) instead of a standard Form 1040. The deadline is June 15, 2025 for 2024 tax year (note: non-residents get an extra three months beyond the standard April 15 deadline).
On Form 1040-NR, you report:
- Gross rental income (in USD)
- US source income only (your Ohio property qualifies)
- Deductions related to that US rental income
Schedule E: Report Rental Property Details
Attach Schedule E (Supplemental Income or Loss) to your Form 1040-NR. Schedule E requires detailed reporting of:
- Property address and identification (Ohio address)
- Rental income (gross rents)
- Operating expenses (same categories as Canada)
- Depreciation (if claimed)
- Net income or loss
Make a Section 871(d) Election
This is critical: By default, the IRS withholds 30% of gross rental income if you don't file or make an election. However, you can elect under Section 871(d) to be taxed on net income (after deductions) instead of gross income.
How to make this election:
- File Form 1040-NR reporting net rental income
- Include a statement titled "Election Under Section 871(d)" with your return, stating you elect to be taxed on net investment income
- Report your rental property address and applicable tax year
Impact: Instead of 30% withholding on gross rents, you'll owe US federal tax only on net income (roughly 10–24% depending on your total US-source income bracket). This election can save thousands annually if your property generates substantial deductions.
Ohio State Tax Obligations
File Ohio Form IT-1040-NR
As a non-resident with Ohio-source income, file Ohio Form IT-1040-NR (Non-Resident Income Tax Return) by the same deadline as your federal return: June 15, 2025 (for 2024 tax year).
Ohio's flat income tax rate is 3.99% on all taxable income sourced to Ohio.
What to report:
- Gross rental income (USD)
- Operating expenses (depreciation is allowed)
- Property tax paid to Ohio (deductible)
- Net rental income taxed at 3.99%
Property Tax
Ohio's average effective property tax rate is 1.59% of assessed value. Unlike income tax, property tax is not optional—it's billed annually by the county treasurer and due by a specific date (typically December 31 for January payment, but varies by county).
Property tax paid is deductible on your Ohio income tax return and your US federal return.
Selling Your Ohio Property: FIRPTA Rules
If you sell your Ohio rental property, the IRS requires the buyer to withhold 15% of the net proceeds under the Foreign Investment in Real Property Tax Act (FIRPTA).
Here's what happens:
- The buyer (or their agent) withholds 15% of net sale proceeds
- The funds are sent to the IRS
- You must file a US tax return to claim the withheld amount and report the gain or loss
- If your actual tax is less than 15% withheld, you receive a refund
Key point: FIRPTA applies even if you have no taxable gain (e.g., if you sell at a loss). The withholding is automatic unless you obtain a FIRPTA exemption certificate from the IRS.
When you sell, you'll also recognize a capital gain (sale price minus adjusted basis, including cost basis adjustments for depreciation). This gain is taxed in Canada at your marginal rate and in the US at capital gains rates (0%, 15%, or 20% federal, plus state tax).
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.
Critical Deadlines: Canada and US (2024 Tax Year)
| Obligation | Form | Deadline | Notes | |---|---|---|---| | CRA Rental Income Report | T776 | June 15, 2025* | Ontario residents with CCA claims get extension | | CRA Foreign Property Form | T1135 | June 15, 2025* | Required if property cost > CAD $100,000 | | **IRS Non-Resident Return
Frequently Asked Questions
Do I need to report my Ohio rental income to CRA?
Yes. As a Ontario resident, you must report your worldwide income to CRA, including rental income from Ohio. You report this on your T1 return and complete Form T776 (or equivalent) for the rental income and expenses. If the property cost more than CAD $100,000, you must also file Form T1135.
What US tax forms do I need as a Ontario landlord with Ohio rental income?
You will typically need: Form W-7 (to get an ITIN if you don't have one), Form 1040-NR (US non-resident tax return), Schedule E (to report rental income and expenses), and Form 4562 (to claim depreciation on the property). You should also make a Section 871(d) election to treat the income as effectively connected so you can deduct expenses.
Will I be taxed twice on my Ohio rental income?
Generally no. The Canada-US Tax Treaty prevents double taxation. You pay US tax first (via Form 1040-NR), then claim a foreign tax credit on your Canadian return to offset the US tax paid. The credit cannot exceed the Canadian tax payable on that income.
What exchange rate should I use to convert Ohio rental income to CAD for CRA?
CRA accepts the Bank of Canada annual average exchange rate for the tax year. You can find the official rate on the Bank of Canada website or use BorderBird's exchange rate tool.
Do I need to withhold tax if I sell my Ohio property?
Yes — under FIRPTA (Foreign Investment in Real Property Tax Act), the buyer must withhold 15% of the gross sale price when a foreign person (including Canadians) sells US real estate. You can apply for a withholding certificate (Form 8288-B) to reduce this if your actual tax liability is less than 15%.
Does Ohio impose its own income tax on my rental income?
Yes. Ohio has a state income tax rate of up to 3.99% on rental income. As a non-resident of Ohio, you will need to file a Ohio state non-resident income tax return in addition to your federal Form 1040-NR.
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