Yukon Landlord with New Hampshire 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.

Yukon to New Hampshire: A Cross-Border Rental Property Tax Guide

Owning US rental property as a Canadian resident creates a unique tax situation. You'll face Canadian federal tax, US federal tax, and potentially state tax—but New Hampshire's absence of state income tax actually gives you a significant advantage. This guide walks you through the real obligations and deadlines you need to know.

Why This Matters: The Two-Tax-System Reality

When you own rental property in New Hampshire as a Yukon resident, you're subject to:

• Canadian federal income tax on worldwide income (including US rental income)
• US federal income tax on US-source rental income
• US property tax in New Hampshire (typically 2.09% effective rate, one of the highest in the US, but no state income tax to offset it)
• No New Hampshire state income tax—a genuine advantage that reduces your overall tax burden

The key is managing both tax systems efficiently so you don't overpay. The CRA and IRS have an income tax treaty (the Canada-US Tax Treaty), but it requires proper filing and elections to work in your favour.

Canadian Tax Obligations: What the CRA Expects

Reporting Income on T776

You must report all gross rental income from your New Hampshire property on Form T776 (Statement of Real Estate Rentals), filed with your personal tax return (Form T1 General). This includes:

• Gross rent collected (in Canadian dollars)
• Mortgage interest paid
• Property tax (converted to CAD)
• Insurance
• Utilities and maintenance
• Condo fees (if applicable)
• Advertising and management fees
• Capital cost allowance (CCA), if you elect to claim it

Critical point: Report income in Canadian dollars. Use the Bank of Canada annual average exchange rate for the tax year. For 2025, use 1 USD = 1.3978 CAD (or the actual annual average for your filing year).

T1135: Foreign Property Reporting

If your New Hampshire property has a cost basis exceeding CAD $100,000, you must file Form T1135 (Foreign Income Verification Statement) with your tax return. This form requires you to report:

• The address of the property
• The cost basis (in CAD)
• The fair market value on June 30 of the tax year (in CAD)
• Any income earned from the property during the year

Failure to file T1135 when required triggers a penalty of $25 per day (minimum $2,500, maximum $12,500) for each year of non-compliance.

Foreign Tax Credit: Avoiding Double Taxation

This is where the Canada-US Tax Treaty protects you. You'll pay US federal tax on your rental income. To avoid paying tax twice on the same income, you claim a foreign tax credit on your Canadian return.

On your T776 (or Schedule 8 of your T1 General), you report:

• US federal tax paid on the rental property
• US property tax paid (converted to CAD)

The CRA allows you to credit up to the lesser of:

1. The foreign tax you actually paid, or
2. Your Canadian tax on the same income

Example: You earn USD $5,000 in net rental income (CAD $6,800). You pay USD $500 in US federal tax (CAD $680). Your Canadian federal tax on that $6,800 is $1,088. You can credit the full $680 against your Canadian tax, reducing it to $408.

US Federal Tax Obligations: IRS Requirements

Obtain an ITIN (Individual Taxpayer Identification Number)

You cannot use your Social Insurance Number (SIN) with the IRS. Instead, you must apply for an ITIN (Individual Taxpayer Identification Number) before filing your first US return.

Apply using Form W-7 (Application for IRS Individual Taxpayer Identification Number) with supporting documents (typically your passport or birth certificate) at a US embassy or consulate in Canada, or mail it directly to the IRS. Processing takes 4–6 weeks by mail from Canada.

Your ITIN is required to:

• File Form 1040-NR (US non-resident tax return)
• Prevent automatic withholding on your rental income

File Form 1040-NR and Schedule E

You must file Form 1040-NR (U.S. Non-resident Alien Income Tax Return) with the IRS annually. Attach Schedule E (Supplemental Income or Loss) to report:

• Gross rental income (in USD)
• Rental expenses (mortgage interest, property tax, insurance, maintenance, depreciation)
• Net rental profit or loss

Deadline: June 15 for non-residents (automatic 2-month extension, but file by June 15 to avoid penalties). If you're a Canadian resident with a June 15 deadline, file by June 15 with the IRS (Ogden, UT office).

Section 871(d) Election: The Game-Changer

Without an election, the IRS withholds 30% of your gross rental income at source. If you file Form 1040-NR and make an election under Section 871(d), you can:

• Report net income instead (gross income minus deductible expenses)
• Depreciate the building (Section 168 depreciation)
• Only pay tax on actual profit, not gross income

To make this election, you must:

1. Attach Form 8288-B (Statement of Withholding on Dispositions by Foreign Persons) with your 1040-NR, or
2. File Form 8833 if claiming a treaty position that differs from US law

Most landlords benefit significantly from this election. Example: If gross rent is USD $24,000 and expenses are USD $14,000, default withholding of 30% (USD $7,200) far exceeds your actual tax liability on USD $10,000 net income.

Reporting to Your Property Manager or Tenant

When you file the 871(d) election, inform your property manager or tenant in writing that withholding should not be applied to your rental income. Provide your ITIN. Without this notice, 30% withholding continues automatically.

Part XIII Withholding: The CRA's Role

If you don't file proper US documentation with the CRA, Canadian financial institutions may withhold 25% of gross rental income under Part XIII (CRA regulations on payments to non-resident persons). This is separate from US withholding.

To avoid Part XIII withholding:

• File Form NR6 (Undertaking) with the CRA before the property generates income, or
• Provide proof of your US tax filing and Section 871(d) election to any Canadian financial institution involved (unlikely for a US-based property, but relevant if you have Canadian income from the property).

In practice, Part XIII withholding is rare for US rental income, but it's important to know it exists.

New Hampshire: The State Tax Advantage

New Hampshire has no state income tax. This is a genuine advantage—you pay no state tax on your rental income, only federal.

However, you will pay New Hampshire property tax, typically 2.09% effective rate (one of the highest in the US). Ensure you budget for this in your expense projections, and know that it's deductible on both your US and Canadian returns.

New Hampshire also has no state capital gains tax, which becomes relevant when you sell.

Selling the Property: FIRPTA Basics

When you eventually sell your New Hampshire property, the Foreign Investment in Real Property Tax Act (FIRPTA) applies. The buyer or their agent must withhold 15% of the gross sale price and remit it to the IRS.

This withholding is credited against your US federal tax liability when you file Form 1040-NR reporting the sale. Use Schedule D (Capital Gains and Losses) to report the gain or loss.

The sale price minus your adjusted cost basis (purchase price, plus capital improvements, minus depreciation claimed) equals your capital gain. You report this on both your US return and your Canadian return (on Form T1 General, Schedule 8).

Key point: Do not attempt to avoid FIRPTA withholding. It's enforced at closing. Plan for the withholding and recover excess through your tax return.

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: US and Canadian

| Task | Deadline | Form | |------|----------|------| | ITIN application (if new) | Before 1040-NR filing | Form W-7 | | US federal return filing | June 15 (non-resident) | Form 1040-NR + Schedule E | | 871(d) election | With 1040-NR | §871(d) election statement or