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Section 871(d) Decision Tool

Non-resident landlords with US rental property face a choice: pay a flat 30% on gross rent (default) or elect under Section 871(d) to be taxed on net rental income at graduated rates. This tool runs the comparison in seconds.

⚠️ 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.

Total rent received from US property in the year
Mortgage interest, property tax, repairs, depreciation, etc.
Side-by-side
Recommended
No election
$0
30% × gross rent
Flat 30% withholding on $0 gross rent. No deductions allowed.
Alternative
With Section 871(d) election
$0
Graduated rates × net income
Graduated brackets on $0 net income (gross − expenses). Marginal rate 10%.
Recommendation: no election needed
Your net income is high enough relative to gross that the graduated rates produce more tax than the flat 30%. This is rare — usually with very low expenses or very high net income. Re-check before deciding; the election, once made, applies to all your US real property.
Brackets shown are 2025 US single-filer brackets, simplified. Actual tax depends on your filing status, treaty benefits, AMT, NIIT (if applicable), and state tax. The Section 871(d) election is made by attaching a statement to your first 1040-NR; once made, it applies to all your US real property in all subsequent years until revoked with IRS consent.

The default — and why it's usually wrong

By default, the IRS treats US-source rental income paid to a non-resident alien as fixed, determinable, annual or periodical (FDAP) income, taxed at a flat 30% on gross. Your tenant or property manager is the withholding agent — they hold back 30% of every rent check and remit it to the IRS.

The default is brutal because it ignores all your expenses. Your actual net income after mortgage interest, property tax, repairs, insurance, utilities, depreciation, management fees, and operating costs is usually a small fraction of gross rent — often a loss in early years.

The Section 871(d) election fix

Electing under Section 871(d) treats your rental income as effectively connected with a US trade or business. You file Schedule E with your 1040-NR, deduct your real expenses, and pay graduated US tax on net income — same brackets as a US taxpayer.

For almost every typical residential rental, this saves significant US tax. The calculator above shows the dollar-for-dollar comparison.

FAQ

What is the Section 871(d) election?
Section 871(d) of the Internal Revenue Code lets a non-resident alien (NRA) elect to treat US real property rental income as 'effectively connected' to a US trade or business. Default treatment is a flat 30% tax on gross rental income with no deductions. With the election, you're taxed on net rental income (after deductible expenses) at the graduated US tax brackets.
Why would I NOT elect?
In rare cases — typically when your deductible expenses are very low relative to gross rent and your net income is so high it falls in the 35-37% top US bracket — the flat 30% on gross can be lower than the graduated rate on net. This is uncommon for typical residential rentals where mortgage interest, property tax, depreciation, and operating expenses substantially reduce net income.
How do I make the election?
Attach a written statement to your first 1040-NR for the year you want the election to apply. The statement says you're electing under Section 871(d) for all US real property rental income. The election applies to all your US real property — past, present, and future — until you revoke with IRS consent (which is rarely granted).
What about Form W-8ECI?
Once you've elected, give Form W-8ECI to your tenant (or property manager) instead of W-8BEN. W-8ECI tells the withholding agent that the rental income is effectively connected income, so they don't need to withhold the default 30%. You then settle the actual tax on your annual 1040-NR.
Can I revoke the election later?
Yes, but you need IRS consent — which is granted only in narrow circumstances. The election is meant to be a long-term decision. For most cross-border landlords, the election remains beneficial as long as deductible expenses are meaningful, which is the typical case.
Does this apply to commercial property too?
Section 871(d) is specifically for real property, including residential and commercial rental real estate. It does not apply to other passive US-source income (interest, dividends, royalties), which has different default rules under FDAP withholding.
What does the calculator NOT include?
The calculator uses simplified single-filer brackets and ignores: state income tax, NIIT (which generally doesn't apply to NRAs but check your situation), AMT, treaty benefits beyond the basic FTC mechanism, and Canadian tax interaction. It's a directional decision tool, not a tax filing tool. Cross-border CPAs run more complete projections.

Related

Schedule E Calculator →
FIRPTA Withholding Calculator →
1040-NR form guide →
BorderBird for Canadian landlords → →