Before you file
ITIN obtained (Form W-7 processed by IRS)
If you do not have an ITIN yet, apply via Form W-7 — Canadian Certifying Acceptance Agents can certify your passport so you do not mail it.
Section 871(d) election filed on first 1040-NR
Without this election, IRS treats rent as FDAP and applies 30% gross withholding instead of net-income graduated rates. Saves thousands per year for landlords with mortgage interest.
Form W-8ECI on file with your US property manager
Stops the default 30% gross withholding at source. Without it, your manager must keep withholding even after you elected 871(d).
Tax year identified (typically prior calendar year)
Schedule E reports the calendar year. April 15 deadline (June 15 if no US wage withholding); extensions to October 15 via Form 4868.
Cross-border CPA engaged (or DIY decided)
Most cross-border landlords use a specialized CPA — fees typically $1,500-3,000/year. The interaction of 1040-NR + Schedule E + T776 + FTC + T1135 + FIRPTA exceeds most single-jurisdiction CPAs' scope.
Income — Schedule E Line 3
All rent payments collected during the calendar year
Gross rent BEFORE any expenses. Cash basis — what actually arrived, not what was due.
1099-MISC or 1099-NEC from your US property manager
Issued by January 31 each year. Cross-check against your own records.
Other rental income line items
Late fees collected, application fees, pet rent surcharges, parking fees billed separately. All taxable income on Schedule E line 3.
Security deposits — NOT income (yet)
Held in trust; only become income if applied to unpaid rent or damages. Last-month rent deposits report as income in the year applied, not received.
Tenant utility recoveries (where landlord pays)
If tenant reimburses you for utilities you paid, the reimbursement is income and the utility cost is an expense — typically net to zero.
Deductible expenses — Schedule E Lines 5-19
Line 5 — Advertising
Tenant search costs, listing fees, Zillow / Realtor.com / Apartments.com promoted listings.
Line 6 — Auto and travel
Travel to inspect property when PRIMARY purpose is rental. Personal travel that includes a property walk-through is not deductible. Document business purpose for any audit.
Line 7 — Cleaning and maintenance
Cleaning between tenants, ongoing maintenance services (lawn care, pool service, pest control).
Line 9 — Insurance
Landlord property insurance, liability insurance, flood insurance, hurricane insurance (Florida/Texas Gulf Coast).
Line 10 — Legal and professional fees
Eviction proceedings, lease drafting by attorney, accountant fees for Schedule E preparation, tax software.
Line 11 — Management fees
Property management fees paid to US-based manager. Typically 8-12% of monthly rent for long-term, 25-35% for short-term/vacation.
Line 12 — Mortgage interest (NOT principal)
Only the interest portion of each mortgage payment is deductible. Year-end statement from your lender (Form 1098) breaks this out.
Line 14 — Repairs
Fixing what is broken (plumbing repair, broken window, HVAC servicing). NOT capital improvements (new roof, kitchen renovation) — those get depreciated.
Line 15 — Supplies
Landlord-provided consumables: light bulbs replaced between tenants, batteries for smoke detectors, etc.
Line 16 — Taxes (property taxes)
Annual property tax bill from the county. NOT income tax or sales tax.
Line 17 — Utilities (where landlord pays)
Water, sewer, garbage, electricity, gas, HOA-included utilities. Only when landlord pays directly — if tenant pays the utility, do not deduct here.
Line 18 — Depreciation
MACRS straight-line on building portion (not land) over 27.5 years. Annual rate ~3.636% of depreciable base. Required by US tax law — you cannot opt out.
Line 19 — Other
HOA fees, permit fees, landlord background-check / tenant-screening fees, accountant phone consultation outside line 10 scope.
Total expenses (sum of above)
Line 21 on Schedule E.
Depreciation — Form 4562 schedule
Land vs building allocation determined
Use county property tax assessor's land/building ratio applied to your purchase price. Document the methodology.
Depreciable base calculated (purchase price × building %)
Land is not depreciable. Example: $400,000 purchase × 75% building = $300,000 depreciable base.
Placed-in-service date documented
When the property was first available for rent. Drives the mid-month convention pro-ration for year 1.
Accumulated depreciation tracked (year over year)
Drives recapture calculation at sale (taxed at max 25% under unrecaptured Section 1250 gain rules).
Capital improvements added to basis
New roof, HVAC replacement, kitchen renovation — added to depreciable base and depreciated over their own 27.5-year clock starting in the year placed in service.
Form 4562 prepared with current-year depreciation
Attached to 1040-NR; line 18 of Schedule E reflects the calculated depreciation.
State return (if property is in a state with income tax)
State non-resident return prepared
Florida = NO state income tax (skip). Texas = NO. Arizona = Form 140NR (flat 2.5%). California = Form 540NR (up to 9.3%). New York = IT-203 (up to 6.85%). Each state has its own form.
State tax payment tracked
State tax paid is creditable against Canadian tax via the Foreign Tax Credit on T1 line 40500 — add to federal US tax in the FTC calculation.
Mixed-use considerations (Section 280A)
Personal use days counted
Days you, your family, or anyone paying less than fair market rent personally occupied the property.
Rental days counted
Days the property was actually rented at fair market value.
14-day / 10% test applied
If personal use exceeded 14 days OR 10% of rental days, property is mixed-use vacation home. Expenses pro-rated to rental day percentage.
Augusta rule exemption checked
If you rented 14 days or fewer and primarily used personally, rental income is tax-free and excluded from Schedule E (the Augusta rule).
Cross-border (Canadian side) coordination
T776 prepared (one per property, in CAD)
Bank of Canada annual average exchange rate for the tax year. 2025 = 1 USD = 1.3978 CAD. Apply same rate to income and all expenses for consistency.
T1135 filed (if foreign property cost base > CAD $100k)
For most Canadian-owned US rental property, T1135 is essentially mandatory. Detailed Reporting required above CAD $250k cost.
Foreign Tax Credit calculated on T1 line 40500
Total US federal + state tax paid (in CAD) becomes credit against Canadian tax owed on the same income. Form T2209 supports.
1040-NR filed before Canadian T1
The actual US tax figure (post-refund if any) becomes the FTC input. Filing T1 first means estimating FTC and amending later.
If selling this year (FIRPTA)
Form 8288-B Withholding Certificate filed 90+ days before closing
Reduces FIRPTA withholding from default 15% gross to actual estimated capital gains tax. Cross-border CPA prepares; IRS takes 90 days to process.
Form 8288-A retained at closing
Proof of FIRPTA withholding remitted by buyer. Attaches to 1040-NR for the year of sale to claim refund of excess.
Adjusted basis calculation prepared
Original cost + capitalized improvements − accumulated depreciation. Drives capital gain + depreciation recapture math.
Schedule D prepared with sale reporting
Capital gain (sale price − adjusted basis) split between depreciation recapture (max 25% rate) and remaining gain (long-term capital gains rate).
Documents to gather and keep (7+ years)
1099-MISC/NEC from property manager
Form 1098 (mortgage interest year-end statement)
Property tax bills and payment receipts
Insurance policy statements and payment receipts
Repair and maintenance receipts (every line)
Management fee statements
Travel records (purpose, dates, mileage)
Bank statements showing rent deposits and expense payments
Lease agreements
Capital improvement invoices (for depreciation base additions)
Prior year tax returns (1040-NR, T1, T776, T1135)
ITIN assignment letter from IRS
Section 871(d) election statement
Section 8288-A (if sold during year)
BorderBird year-end CSV export (if using)
Common mistakes to avoid
Skipping depreciation (it's mandatory, not optional)
IRS calculates recapture at sale based on depreciation you COULD have taken even if you didn't — so skipping costs twice.
Claiming personal-use expenses as rental expenses
Mixed-use property requires day-based pro-ration. Personal-use portion is never deductible against rental income.
Mortgage principal claimed as interest
Only the interest portion is deductible. Year-end statement from lender breaks it out.
Capital improvements expensed in one year
$25,000 kitchen renovation gets depreciated over 27.5 years, not expensed on line 14. Get this wrong and you over-claim today, under-claim later.
Forgetting state return
Federal 1040-NR is not the end of the line. State non-resident return required in any state with income tax on rental.
Filing without ITIN
Submit Form W-7 with first 1040-NR — IRS rejects returns without a valid TIN.