Canadian Buying US Property: The Complete Tax Picture

Buy a place in the US as a Canadian and you pick up obligations in four separate places. There’s an annual US filing the moment it earns rent, a US estate tax exposure most people are quoted the wrong number for, a withholding event on the sale that runs off the gross price rather than your profit, and a Canadian reporting form that can be owed for the year you buy, because a US rental counts toward a Canadian resident’s $100,000 cost-amount line. The decision that has to happen first is how you’ll own it, because that’s the one that gets expensive to change once title has transferred.

Who this page is for

This is written for a Canadian resident who owns, or is about to own, real property in the United States: a Florida condo, a rental, a lake place, a unit bought through a company. It assumes you’re not a US citizen or a green card holder, and that Canada is where you live and file, or where you’re moving back to.

Two nearby situations belong somewhere else. If you’re the mirror case, buying Canadian property from a seller who might be a non-resident of Canada, that’s a different statute with a different rate on a different base, and it’s worked through in buying Canadian property from a non-resident. If you already live in the US and hold a Canadian rental, the NR6 and section 216 route is the page you want.

Everything below is a hub. Each answer here is the short version, sized to tell you which decision you’re actually facing and which date it keys to. The working detail lives on the page each section links to, and there’s no point in us writing it twice.

The decision map: what happens, and in what order?

Eleven things happen across the life of a US property, and they don’t happen at once. Two land before closing, and one of those two then gets re-tested every year; one runs every year you own it while you live in Canada; three attach to each year you rent, two land on the sale, one lands on the day you become a Canadian resident again, one lands at death, and one exists only if a company holds the title. Read the trigger column first, because the order of the dates is what decides which choices are still open to you.

Step	What happens	Deadline or trigger	Form(s)	Where it is worked
Before closing	You choose the ownership vehicle, and the choice gets costly to reverse afterwards	Before title transfers	Form 8832, and only if you elect corporate treatment for an LLC	Ownership vehicles compared
Before closing, then annually	If you also spend time there, the day count is a separate question from ownership	Ongoing, tested for each calendar year	Form 8840 where you claim the closer-connection exception	Snowbird who bought a condo plus the day-count pillar
Every year you own it, while you live in Canada	The property counts as specified foreign property for T1135 unless an exclusion reaches it, and the one in point is personal-use property under ITA 233.3(1)(p)	Any time in the year, other than a time you were non-resident, that the total cost amount of your foreign property exceeds $100,000	T1135, filed by your filing-due date for the year under ITA 233.3(3)	What the T1135 cost-amount line covers
First rental year	30 percent of the gross rent received is the default charge, or you elect to be taxed on net rental income	With that year’s return, and the initial election can generally still be made inside the section 6511(a) refund-claim window	Statement with Form 1040-NR, Schedule E, Item M	30 percent or the section 871(d) election
Every year you rent	Withholding stops at source once the income is effectively connected and the payer holds a valid certificate, and not before	Before the payment is made	Form W-8ECI to the tenant or the manager	Same guide
Every year you rent short-term	Three separate tests get merged in most published content, and they sit in different Code sections	Annual, and the depreciation class is tested year by year	Form 1040-NR	Airbnb and US property as a non-resident
On sale	15 percent of the amount realized is withheld, which is the gross price and not your gain	At closing	Form 8288-B before closing to apply for a reduced amount	FIRPTA withholding and refunds
On sale	Ordinary recapture under section 1250(a) is generally zero on a straight-line residential rental, and the same depreciation is still taxed at up to 25 percent of the unrecaptured section 1250 gain	The tax year of the sale	Form 1040-NR	Depreciation recapture on a US rental
On becoming a Canadian resident again	The Canadian cost of the property resets to fair market value, and the cost amount the T1135 test measures resets with it	The day Canadian residency begins	T1135, where the cost amount test is met and the first-year exception doesn’t apply	Sell or keep the US place
On death	US estate tax on US-situs property, and a treaty credit that does not compute itself	9 months after the date of death unless an extension was granted, per the Form 706-NA instructions	Form 706-NA	The $60,000 exemption question
If a company holds it	Two layers of US tax where the activity rises to a US trade or business, plus a Canadian shareholder benefit on any personal use	The corporation’s own fiscal year end drives the US filing date	Form 1120-F	US property in my Canadian corporation

Every row in that table is true on its own terms. The rental rows assume there’s rent, the sale rows assume a disposition, the T1135 row assumes you’re resident in Canada and over the cost-amount line, and the company row assumes a company, but the T1135 row in particular doesn’t wait on any of the others.

Do I have to file a US return just because I own it?

No US return, and that is the whole of the good news. Ownership by itself doesn’t create a US income tax filing obligation, because there’s no US income to report yet. What creates the US filing is income or a disposition: rent puts you on a Form 1040-NR, and so does a sale. A Canadian filing is a separate question with a different answer, and it can be live from the year you buy. Three other things surprise people here, and none of them waits for rent to arrive.

• Real property located in the United States is US-situs for estate tax under Reg 20.2104-1(a)(1), and so is the tangible personal property inside it, meaning the furniture and the car in the garage.
• The Canadian reporting form runs off ownership rather than off a move home. ITA 233.3(1) makes you a reporting entity where, at any time in the year other than a time you were non-resident, the total cost amount of your specified foreign property exceeds $100,000; tangible property situated outside Canada is on that list, and the carve-out in point is paragraph (p), personal-use property. CRA’s published answer on this exact asset splits it by use: a Florida condo “rented out for eight months of the year with a reasonable expectation of profit” is “a specified foreign property and has to be reported on Form T1135”, and one kept only as a vacation place is not. So a Canadian resident whose US rental carries them over that line is inside T1135 for the purchase year, filing by that year’s filing-due date under ITA 233.3(3). What the T1135 cost-amount line covers has the detail.
• The substantial presence day count runs on physical presence and is a separate question from ownership. The count itself belongs to the snowbird day-count pillar and the calculator.

What buying does change on the residency side is narrower than it sounds. A dwelling you keep available to yourself continuously can count as a second permanent home, which is the first-listed factor in the closer-connection regulation at Reg 301.7701(b)-2(d)(1), and Form 8840 asks you to list each such home and explain. That’s a disclosure and an explanation rather than a lost claim, and the snowbird condo page walks the form lines.

How should I own it, and when does that get decided?

Before closing, because afterwards your options narrow to the ones that cost tax to reach. Four vehicles come up: your own name, a US LLC, your Canadian corporation, a trust. The regulations give a clean estate-tax situs answer for the property itself and none for the vehicles, which is why the ownership-vehicle page sets out four axes and leaves the choice with you rather than naming a winner.

• A US LLC with a single member is disregarded by default (Reg 301.7701-3(b)(1)), so the income tax answer matches holding the property personally, and corporate treatment takes an affirmative Form 8832 election. That election’s effective date is measured from the day the election is filed rather than from closing: under Reg 301.7701-3(c)(1)(iii) the date specified can be no more than 75 days before the filing date and no more than 12 months after it, so filing late shortens how far back the election can reach.
• Whichever vehicle you pick, the underlying real property stays US-situs for estate tax under Reg 20.2104-1(a)(1). Where the LLC interest itself is situated is not answered by IRC 2104, IRC 2105 or their regulations in either direction, and we won’t invent an answer to it.
• A Canadian corporation can add a second layer of US tax, and only where the activity rises to a US trade or business, which IRC 882(a) assumes rather than decides. On that footing IRC 884(a) imposes a tax of 30 percent of the dividend equivalent amount on top of the IRC 882 tax on effectively connected income. The treaty cuts that in two moves rather than one, and the two run on different measures: IRC 884(e)(2)(A)(i) substitutes the treaty’s rate onto the statutory base, which stays the dividend equivalent amount, and IRC 884(e)(2)(B) then applies Article X(6) as a separate ceiling measured its own way, on earnings attributable to permanent establishments. That ceiling is 5 per cent, cut down from 10 per cent by Schedule IV Article 5(1). None of it is automatic on being Canadian: IRC 884(e)(1) lets no treaty exempt a foreign corporation from the section 884(a) tax “or reduce the amount thereof” unless the treaty is an income tax treaty and the corporation “is a qualified resident of such foreign country”, a test IRC 884(e)(4) runs on the company’s own ownership and financing facts. It has to be run, and whether a given company passes is a question of fact this page doesn’t decide either way.
• A trust is the most fact-dependent of the four and isn’t compared on either page, because the provisions that would decide it weren’t sourced.

If the property is already inside a Canadian company, that’s a live file rather than a planning question, and three problems are running at once: the US corporate layer if the activity reaches a US trade or business, the Canadian shareholder benefit under ITA 15(1) on any personal use, and a cost to getting the property back out. US property in my Canadian corporation works each of them and is honest about the ones nobody can price without your facts.

What comes off the rent, and can I change it?

Thirty percent of the gross rent, by default, with nothing deductible against it. IRC 871(a)(1)(A) taxes rents at 30 percent of the amount received, “but only to the extent the amount so received is not effectively connected with the conduct of a trade or business within the United States”, and IRC 873(a) allows a non-resident’s deductions only for section 871(b) purposes, so mortgage interest, property tax, repairs and depreciation are unavailable against it. That limiter is the hinge: the section 871(d) election makes the rent effectively connected and moves you to net-basis graduated rates.

• The two figures sit on different bases and aren’t comparable as printed: 30 percent of gross rent received, against graduated rates on net rental income after allowed deductions.
• The useful part is timing. Reg 1.871-10(d)(1)(i) lets the initial election be made at any time before the section 6511(a) refund-claim period expires, without the Commissioner’s consent, so somebody already suffering 30-percent-of-gross withholding may well still be inside the window. How much room is left runs off section 6511(a), which measures the period differently depending on whether a return was filed for the year, so it is worth checking rather than assuming.
• It’s binding on all later years unless the Secretary consents to a revocation, and a consented revocation carries a five-taxable-year lockout under IRC 871(d)(2), which runs “unless the Secretary consents to such new election” inside it.
• Withholding at source stops when the payer holds a valid Form W-8ECI, given before the payment is made. Silence keeps the 30 percent of gross coming off, because the default presumption runs against effectively connected income.

Thirty percent of gross rent, or the section 871(d) election carries the statement contents, the five-link withholding chain, and the depreciation consequence that catches people who thought skipping it preserved their basis.

Is there a treaty rate on any of this?

Not on rent, and this is where readers arriving from our pension pages get caught. Article VI of the Canada-US treaty, whose operative text is Schedule II Article III, permits the situs State to tax income from real property, and paragraph 3 extends that to “the direct use, letting or use in any other form of real property”. So the treaty confirms the US right to tax your rent and gives no reduced rate for it.

“Income derived by a resident of a Contracting State from real property (including income from agriculture, forestry or other natural resources) situated in the other Contracting State may be taxed in that other State.”

That’s a permission to tax rather than a rate, and it isn’t exclusive: the words are “may be taxed in that other State” rather than “may be taxed only” there. Which country then relieves the other’s tax is a separate article this page doesn’t work.

Where the treaty does real work on a US property is at death, in Article XXIX B, and both of the paragraphs that matter come with conditions attached. They’re in the estate section below.

Does renting it out short-term change the answer?

It changes which tests you’re inside, though not the way most content says. Three different rules get merged constantly, and they live in three different Code sections: whether the activity is a passive “rental activity” under the section 469 regulations, whether self-employment tax applies under IRC 1402, and whether the building is 27.5-year or 39-year property under IRC 168. Each carries its own threshold or none at all, and reading one test’s day count across into another is where the published answers go wrong.

• The seven-day rule is an average period of customer use under Reg 1.469-1T(e)(3)(ii)(A), and that average is a gross-rental-income-weighted one under Reg 1.469-1(e)(3)(iii), because the temporary regulation reserves the definition and the final regulation supplies it. Escaping “rental activity” doesn’t by itself make the activity non-passive, and material participation is a separate question with its own test.
• Self-employment tax is answered upstream, and the answer ends the analysis. IRC 1402(b) defines self-employment income as net earnings derived by an individual “other than a nonresident alien individual, except as provided by an agreement under section 233 of the Social Security Act”, so there’s nothing for the self-employment tax to reach unless a totalization agreement applies or you become a US resident.
• The transient-use exclusion in IRC 168(e)(2)(A)(ii)(I) can push a short-term rental to 39 years instead of 27.5. How its “more than one-half of the units” test applies to a single condo or house is unresolved, so we print no recovery period for a single-unit short-term rental.

Airbnb and US property as a non-resident keeps the three tests apart and says which of them you actually reach.

What happens when I sell?

Two things, on the same closing date, and they’re independent of one another. The buyer withholds 15 percent of the amount realized under IRC 1445(a), which is the gross price and not your gain, so a sale at a loss can still have five figures withheld. Then the gain gets computed on your return, where the recapture everybody worries about is usually not the thing that costs money.

• The withholding is a prepayment against the tax rather than the tax, and a Form 8288-B application before closing is the route to a reduced amount. FIRPTA withholding and how to get it back owns that mechanic, the base, and the refund timing.
• Ordinary recapture under IRC 1250(a) is generally zero on a straight-line residential rental, because IRC 1250(b)(1) measures only depreciation in excess of straight line and IRC 168(b)(3)(B) makes straight line mandatory. The same depreciation is still taxed, as unrecaptured section 1250 gain, at up to 25 percent of that amount under IRC 1(h)(1)(E), which is a ceiling rather than a flat rate. Cost-segregated personal property and pre-1987 property change that answer.
• IRC 897(a)(1) routes the gain into IRC 871(b)(1) and from there into section 1, so you reach those rates whether or not you ever made a section 871(d) election.

Depreciation recapture on a US rental carries the four-step chain, the basis floor in IRC 1016(a)(2), and the two non-resident differentials that do exist.

What is the US estate tax exposure, really?

Real, and the $60,000 figure you keep reading is a filing threshold rather than your exemption. Form 706-NA is required once the date-of-death value of US-situated assets, together with the gift tax specific exemption and the amount of adjusted taxable gifts, exceeds $60,000, so an estate holding less than $60,000 of US assets can still be a filer. The form instructions give 9 months from the date of death to file, extendable by six months on a Form 4768. What usually changes the bill is a treaty credit, and the treaty attaches a condition to it.

• Article XXIX B(2), operative text Schedule IV, gives the estate of a Canadian resident who is not a US citizen the greater of a pro-rated share of the credit allowed to a US citizen’s estate and the ordinary non-resident credit. The pro-rata limb is allowed “only if all information necessary for the verification and computation of the credit is provided”.
• Article XXIX B(8), also Schedule IV, says that where the worldwide gross estate is no more than US$1.2 million the US may tax only property whose alienation gain would have been US-taxable under Article XIII. Real property is Article XIII property, so this provision does not shield the condo. The treaty states the figure flat, with no indexing language in it.
• The IRS’s stated position, in its internal manual at IRM 4.25.4.3.1, is that a statement invoking the treaty and showing the calculation is attached to the Form 706-NA. An internal manual is not law and states no consequence for leaving the statement off, so we don’t assert one.

The $60,000 exemption question works the credit, the fraction, the limiter in domestic law that narrows it, and the dated 2026 figures this page deliberately leaves alone.

What changes if I move back to Canada?

Canada resets your cost in the property to fair market value, so the pre-arrival gain drops out of the Canadian base whether you sell first or not. Under ITA 128.1(1)(b) you’re deemed to have disposed of the property, and under 128.1(1)(c) to have acquired it at a cost equal to those proceeds. The deeming is timed “immediately before the time that is immediately before” residency begins, which is while you’re still a non-resident, so no Canadian tax arises on arrival.

• The reset removes a latent loss exactly as it removes a latent gain, for the same reason, so it isn’t uniformly good news.
• Your US basis is untouched by a Canadian deeming provision, so one later sale can produce two very different gains in the two countries. The credit mechanics for that mismatch weren’t sourced here and aren’t worked on this page.
• If you were non-resident through the ownership years, T1135 switches on with your residence rather than having been running all along, and the cost amount tested against the $100,000 reporting-entity threshold is the freshly deemed fair market value cost rather than what you originally paid, because ITA 233.3(1) tests the threshold at any time in the year “other than a time when the entity is non-resident”. The arrival year has an exception of its own: ITA 233.7 relieves an individual other than a trust “who first became resident in Canada in the year” from filing for that year, and CRA says the same of a new resident. Whether that wording reaches somebody who was a Canadian resident before, left, and came back is not settled by the provision, so a returning resident shouldn’t assume the arrival year is free.

Sell or keep the US place when you move back sets out both options on both sides, including why Article XIII(6) doesn’t help with a US property, and leaves the decision where it belongs.

The six dates everything keys to

A single property can have six different trigger dates running against it, and most of the wrong answers in this area come from keying a consequence to the wrong one. A present condition is not the same thing as a correct one. This table pairs each date with what it fires and, just as usefully, with what it doesn’t.

Trigger date	What it fires	What it does not fire
Closing on the purchase	The ownership vehicle is fixed, and reversing it starts to cost tax. For someone resident in Canada, the purchase can also carry the total cost amount of their foreign property over the T1135 $100,000 line for that same year, unless the place is personal-use property	No withholding and no US income tax return arise from buying, and closing does not start the Form 8832 clock, which Reg 301.7701-3(c)(1)(iii) measures from the date the election is filed
Each rental year	The 30 percent of gross rent default or the net-basis election, the Form W-8ECI in the payer’s hands before payment, and the annual Item M footprint of a live election	Nothing here depends on the sale or on your day count, and the seven-day short-term test is measured for the year rather than for any single stay
Closing on the sale	15 percent of the amount realized withheld, and the gain computed for the tax year the sale falls in	The withholding isn’t the tax and isn’t measured on the gain, so a loss year can still have money held back
The day you become a Canadian resident again	The ITA 128.1(1)(c) cost reset, and, for someone who was non-resident until then, the T1135 cost-amount test, which from that day measures the reset cost rather than what was originally paid, because ITA 233.3(1) ignores any time the person was non-resident	Nothing on the US side moves, because US basis is unchanged by a Canadian deeming rule, and ITA 233.7 relieves the return for the year in which an individual first became resident in Canada, which leaves a returning resident’s arrival year unsettled
Date of death	US-situs testing under Reg 20.2104-1(a)(1), the $60,000 Form 706-NA filing threshold measured on US-situated assets together with the gift tax specific exemption and adjusted taxable gifts, and the 9-month deadline in the form instructions absent an extension	The treaty credit does not compute itself, and the IRS position is that it is claimed by a statement attached to the return
The corporation’s fiscal year end	The Form 1120-F filing date for a corporation that has to file at all, which for a foreign corporation with no US office is generally the 15th day of the 6th month after the end of its tax year	It has nothing to do with your personal filing dates, and where there is a filing obligation a treaty exemption doesn’t remove it

Two of those six are inside your control, and they’re the two that matter most: you pick the closing date on the purchase and the closing date on the sale. The other four are set by facts, by a residency date, or by a company’s own calendar.

What this page doesn’t settle

A pillar earns its keep partly by being clear about where the law stops. Five questions come up constantly on these files and have no sourced answer, so nothing on this page or its siblings resolves them by analogy.

• Where an LLC or partnership interest is situated for US estate tax. IRC 2104, IRC 2105 and their regulations write a rule for corporate stock and write none for these, and no stated rule is a different thing from not US-situs. Neither direction is asserted here.
• Whether a single condo or house that’s let short-term is 27.5-year or 39-year property. The transient-use exclusion turns on “more than one-half of the units”, and how that reads on a one-unit property is unresolved.
• Whether ITA 233.7’s first-year exception reaches somebody who was a Canadian resident before. It relieves an individual other than a trust “who first became resident in Canada in the year”, and neither the provision nor CRA’s guidance for new residents says whether becoming resident a second time counts.
• Whether depreciation is “allowable”, for basis purposes, in a year the owner had no effectively connected income and filed no US return. It matters because the basis reduction is a floor, and it is genuinely open.
• Whether renting out a US house makes a foreign corporation engaged in a US trade or business, and whether one that merely owns US property and earns nothing has to file at all. IRC 882(a) charges a corporation that is engaged in one without saying what counts, and the Form 1120-F instructions carry no trigger keyed to bare ownership.

What does getting this right cost?

Less than people fear on the annual filings, and more than they expect on the one-off events. A standalone Form 1040-NR starts at $600 on our published rate card, and a rental year with a Schedule E and a live section 871(d) election sits above that, because the depreciation schedule and the expense allocation are the actual work. The structuring conversation before closing is the cheapest hour in the sequence, and generally the one that changes the shape of everything after it.

• Pre-purchase structuring: the $249 Cross-Border Assessment covers the written read on your facts and your dates, and it’s credited in full toward any Blue Cloud engagement you start within 60 days of it. Where the vehicle question then needs real work, it’s billed at the ad-hoc strategic rate of $395/hr, with a 30-minute minimum.
• An annual Form 1040-NR with Schedule E: from $600 for the standalone non-resident return, and from $2,495 for a Cross-Border Executive year where both countries are filed together and there are rentals or investments in the picture.
• A Form 8288-B application before closing: quoted at scope, because the work is the valuation support and the closing timetable rather than the form itself. For a sense of scale, the comparable published Canadian-side line, a T2062 filing, is $700.
• A Form 706-NA with a treaty claim: quoted at scope. It’s an estate engagement on a 9-month clock that a Form 4768 can push out by six months, and the pro-rata credit needs the worldwide gross estate valued, which is where the hours go.

Every figure above except the $249 assessment is a starting point rather than a quote, and the exact fee is fixed in writing at the assessment. Published ranges for the recurring work sit on the pricing page.

The order of operations, condensed

1. Decide how you’ll own it, and decide before title transfers. Start at ownership vehicles compared.
2. If you’ll spend time in the place yourself, start the day log the week you buy, and read the snowbird condo page for what the purchase changes on Form 8840.
3. If you live in Canada, run the T1135 test for the year you buy rather than treating it as a later problem. It measures the total cost amount of your foreign property at any time in the year, and a rental generally misses the personal-use exclusion.
4. In the first year there’s rent, choose between the 30 percent of gross rent default and the net-basis election, and get the statement in with the return.
5. If you made the net-basis election, get Form W-8ECI to the tenant or the property manager before payments start, because withholding stops prospectively and not retroactively.
6. Claim depreciation every year you’re entitled to. Basis falls by the allowable amount regardless, so skipping it is a pure loss.
7. Before you list the property, look at Form 8288-B, since a withholding reduction is applied for ahead of closing and not afterwards. FIRPTA withholding and refunds has the route.
8. If you’re moving back to Canada, get the arrival-date fair market value documented while it’s easy, then check the T1135 threshold against the reset cost rather than the original one.
9. Once there’s US property in the estate, the Form 706-NA question exists whether or not anyone has raised it, and the treaty credit is claimed rather than granted. The $60,000 exemption question is the place to start.

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.