Income Tax – Rental income in the US

In the US, Canadians are generally taxed one of two ways. The first is regular tax on Effectively Connected Income to a trade or business in the US. Under this method deductions related to the trade or business are allowed against gross income to determine taxable income.

The second, is a flat 30% tax rate on gross income (no deductions are allowed) on dividends, royalties, and rental income. Income subject to the 30% tax is commonly known as Fixed, Determinable, Annual, or Periodical (FDAP) income.

Typically, we see Canadians acquire real property and rent it out to minimize the cost load to maintain the property.  Failure to timely elect protections under the IRC causes gross rental income to be taxed at 30%. That means the Canadian owner is denied deductions for interest, property taxes, maintenance, landscaping, home owner association dues, and depreciation. Timely planning can avail the Canadian investor to tax saving advantages for their US rental property.

Like in calculating gains discussed above, currency exchange rates also affect net rental income Canadians will report on their T1 and to their provinces.

We help Canadians plan and elect under the IRC to achieve positive US income tax results. Planning may include recommending the establishment of a business entity to protect from personal liability resulting from injury on the property and avoid US Estate Taxes.

US Income, Gift, and Estate Tax Planning
Income Tax – Gain on Sale of Real Property
Foreign Investment in Real Property Tax Act (FIRPTA)
Gift Tax
Estate Tax

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