Considerations for Canadians on Owning US Real Estate

More and more Canadians are purchasing U.S. real estate for personal and/or rental use. It’s important to understand how different ownership options lead to different tax consequences.

Case Study

Jerry is a Canadian resident and citizen who purchased a condo in Phoenix, Ariz., on July 15, 2013, for $125,000. Jerry’s plan has always been to rent it out on a short-term basis for the entire year, with the exception of three weeks in the month of August, when he will use it personally.

After a few minor repairs, Jerry had the condo ready for renters by Aug. 1, 2013; however, he didn’t actually have anyone interested to rent the condo until January 2014.

What Is Jerry’s Filing Requirement in the US for 2013?

Because Jerry’s intention is to rent the property, even though he doesn’t have any renters until 2014, he must report the purchase of the condo and take depreciation for the 2013 tax year; therefore, he must file a 1040NR (U.S. tax) return.

Does It Make a Difference if Jerry Plans to Use the Condo Solely for Personal Purposes Instead of Renting It?

If he uses the property solely for personal use, then he has no filing requirement in the U.S. until he sells it.

In What Country(ies) Does Jerry Need to Report His Rental Income and Expenses?

The U.S. rental income and expenses must be reported in both the U.S. and Canada: in the U.S. because the property is located in the U.S., and in Canada because Jerry is a Canadian resident and is subject to tax on a worldwide-income basis.

 

Courtesy Fundata Canada Inc. © 2014. Angela Preteau, CA, CPA, is a faculty member of the Knowledge Bureau. This article originally appeared in the Knowledge Bureau Report, and is excerpted from her book “Canadians & The IRS.” All rights reserved. Reprinted with permission.

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