Cross-Border Rental Income: How the US and Canada Tax a Rental on the Other Side of the Border

Rental income is taxed first where the property sits, and the country you live in taxes it again with a credit for the first tax. Without an election, both countries take a flat cut of gross rent, 30% in the US and 25% in Canada, with no deductions. A Canadian with a US rental elects under IRC 871(d) and files Form 1040-NR on net income; an American with a Canadian rental files Form NR6 and a Section 216 return by June 30. The elections nearly always cut the tax to a fraction of the withholding.

How is a Canadian resident taxed on US rental income?

The default is a 30% tax on gross rent under IRC 871(a), collected by the tenant or property manager, with no deductions. The fix is the IRC 871(d) election, which treats the rent as effectively connected income so you deduct mortgage interest, property tax, insurance, repairs, management fees and depreciation and pay graduated rates on the net, then give the payer Form W-8ECI so the withholding stops. You make the election with a statement attached to Form 1040-NR, and it stays in effect for later years unless you revoke it.

• IRC 871(a)(1) imposes “a tax of 30 percent of the amount received from sources within the United States by a nonresident alien individual” on rents and other fixed or periodic income. IRC 871(d)(1) lets an individual with income “from real property held for the production of income and located in the United States” elect “to treat all such income as income which is effectively connected with the conduct of a trade or business within the United States,” and the election “shall remain in effect for all subsequent taxable years, except that it may be revoked with the consent of the Secretary.”
• Publication 519: “If you make the choice, you can claim deductions attributable to the real property income and only your net income from real property is taxed.” You report on Schedule E, carry the net to Schedule 1, attach both to Form 1040-NR, and for the first year attach a statement saying you’re making the choice and listing all your US real property.
• Publication 515 tells the payer to withhold on US rents “unless the foreign payee elects to treat this income as effectively connected,” in which case “the payee must give you Form W-8ECI.”
• You need a US taxpayer number. Publication 519: “If you do not have and are not eligible to get an SSN, you must apply for an individual taxpayer identification number (ITIN),” which is how a Canadian applies for an ITIN.
• Two deadlines. A 1040-NR with no wages subject to withholding is due June 15 (Publication 519: “file your return and pay your tax by June 15, 2026” for 2025). And Publication 519’s deductions rule: “a return is timely if it is filed within 16 months of the due date.” File later than that and the deductions, including the election’s whole point, are gone for the year.
• State income tax is separate, and which states tax a non-resident’s rental depends on where the property is.

The election mechanics in more depth are in US rental income: 30% withholding or the Section 871(d) election.

How is a US resident taxed on Canadian rental income?

Canada’s default is 25% non-resident tax on gross rent under Part XIII, withheld by the tenant or agent and reported on an NR4 slip. To pay tax on net income instead, send the CRA Form NR6 on or before January 1, or before the first rent payment, so the agent can withhold 25% of net rent once it’s approved, and then file a Section 216 return by June 30 of the next year. Without an NR6 you still have two years to file a Section 216 return and recover the excess, but the cash sits with the CRA until you do.

• ITA 212(1)(d) lists “rent, royalty or similar payment” among the amounts a non-resident pays 25% tax on. The CRA’s T4144 guide: “the payer or agent (such as the property manager) must withhold non-resident tax of 25% on the gross rental income paid or credited to you.”
• ITA 216(1) lets the non-resident, “within two years (or, if that person has filed an undertaking described in subsection (4) in respect of the year, within six months) after the end of the year, file a return of income under Part I for that year,” and 216(2) refunds any withholding “in excess of the person’s liability for tax under this Act for the year.”
• T4144 on the NR6: “You should send the CRA Form NR6 on or before January 1 of each year or before the first rental payment is due. Your agent must continue to withhold non-resident tax on the gross rental income until the CRA approves your Form NR6 in writing.” Once approved, “your agent can withhold non-resident tax of 25% on your net rental income.”
• T4144 on the deadline: with an approved NR6 for 2025, “you have to file your 2025 Section 216 return on or before June 30, 2026,” and the return is due April 30 instead if you sold a property you’d claimed CCA on and are reporting the recapture. Miss the date and “your election will be invalid,” and with an NR6 in place “you will be subject to non-resident tax on your gross rental income.”

The NR6 and Section 216 process, including the departure-year version, is in Canadian rental income after moving to the US: NR6 and Section 216.

What can I deduct, and how does depreciation differ?

Both countries let you deduct the ordinary costs of running the property against net rent, and the systems part on depreciation. The US depreciates residential rental property over 27.5 years under IRC 168. Canada’s capital cost allowance puts a typical rental building in Class 1 at 4% on a declining balance, and CCA can’t be used to create or increase a rental loss. Land isn’t depreciable on either side. Each return uses its own method, so the net income reported to the two governments won’t match, and that’s normal.

	US side (Canadian owner, Form 1040-NR)	Canadian side (US owner, Section 216)
Default without an election	30% of gross rent withheld, no deductions (IRC 871(a))	25% of gross rent withheld, no deductions (ITA 212(1)(d))
Election	IRC 871(d) statement with the first 1040-NR; Form W-8ECI to the payer	Form NR6 to the CRA before January 1 or the first payment; agent withholds 25% of net
Return	Form 1040-NR with Schedule E, due June 15 if no wages; deductions lost if filed more than 16 months late	Section 216 return, due June 30 after an approved NR6, otherwise within two years
Depreciation	Residential rental property, 27.5 years (IRC 168)	Class 1, 4% declining balance; can’t create or increase a rental loss
Personal use	Residence treatment above 14 days or 10% of rental days (IRC 280A); a unit you also use as a residence and rent under 15 days: no income and no deductions	Expenses apportioned to the rental part
Home-country reporting	T1 with Form T776, foreign tax credit under ITA 126(1)	Form 1040 Schedule E, foreign tax credit under IRC 901 and 904

• IRC 168(c) gives “Residential rental property” a recovery period of “27.5 years.”
• The CRA’s T4036 Rental Income guide: “A rental building may belong to Classes 1, 3, 6, 31, or 32, depending on what the building is made of and the date you acquire it,” with Class 1 at 4%, and its example allows CCA “if it does not create or increase a rental loss.” The capital cost excludes “the cost of land, which is not depreciable.”
• IRC 280A(d)(1) treats a unit as a residence when personal use exceeds “the greater of 14 days, or 10 percent of the number of days during such year for which such unit is rented at a fair rental,” and 280A(g) says a residence “actually rented for less than 15 days” produces no deductions and no income. The Canadian condo version is in the 14-day rule for a Florida condo.
• Every figure on the home return is converted at the rate for the day of each rent receipt or expense, or an average rate where the amounts are steady; currency conversion for cross-border tax covers the accepted rates.

How does the foreign tax credit stop double tax?

Treaty Article VI gives the property’s country the first right to tax rental income, and your home country credits that tax. A Canadian resident claims the US tax under ITA 126(1) on the T1, limited to the Canadian tax on that income; a US resident claims the Canadian Section 216 tax on Form 1116, with unused credit carried back one year and forward ten under IRC 904(c). The credit is for the tax finally owed, so an election that cuts the source-country tax also cuts the credit, and the total still falls.

• Article VI(1) of the treaty: income “from real property … situated in the other Contracting State may be taxed in that other State,” and paragraph 3 applies that to “income derived from the direct use, letting or use in any other form of real property.”
• ITA 126(1): “A taxpayer who was resident in Canada at any time in a taxation year may deduct from the tax for the year otherwise payable under this Part by the taxpayer an amount” for non-business income tax paid to another country, capped by the Canadian tax on that foreign income. How the US rental lands on the T1, and the T1135 question, is in reporting US income on a Canadian return.
• IRC 904(c): excess foreign tax “shall be deemed taxes paid or accrued to foreign countries or possessions of the United States in the first preceding taxable year and in any of the first 10 succeeding taxable years, in that order.” The mechanics are in Form 1116 and Canadian tax changes and FTC carryforward and carryback.
• A US person collecting Canadian rent in a Canadian bank account has an FBAR to file once “the aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year,” per the IRS FBAR page. The property itself isn’t a financial account; who has to file an FBAR covers the rest.

What happens when I sell?

The property’s country taxes the gain first. A Canadian selling US property faces FIRPTA withholding of 15% of the gross price (10% where the buyer will live there and the price is $1,000,000 or less, none where the buyer will live there and the price is $300,000 or less), files a 1040-NR to report the real gain, and pays up to 25% on the depreciation recaptured. A US resident selling Canadian property gives the CRA notice within 10 days and gets a clearance certificate, or the buyer holds back 25% of the price, then files a Canadian return on the gain at the 50% inclusion rate. The home country taxes the gain again with a credit.

• IRC 1445(a): the buyer “shall be required to deduct and withhold a tax equal to 15 percent of the amount realized on the disposition.” Section 1445(b)(5) switches withholding off where “the property is acquired by the transferee for use by him as a residence” and “the amount realized for the property does not exceed $300,000,” and 1445(c)(4) substitutes “10 percent” where the buyer’s residence costs “not more than $1,000,000.” A withholding certificate on Form 8288-B can reduce it further, per Publication 515.
• IRC 1(h)(1)(E) taxes “unrecaptured section 1250 gain” at up to “25 percent,” which is the depreciation you claimed coming back, at your ordinary rate if that’s lower. The detail is in depreciation recapture when a Canadian sells a US rental and FIRPTA withholding on a Canadian’s US sale.
• ITA 116(3): a non-resident who disposes of taxable Canadian property “shall, not later than 10 days after the disposition, send to the Minister, by registered mail, a notice,” and without a certificate the buyer is liable for “25% of the amount, if any, by which the cost to the taxpayer of the property so acquired exceeds the certificate limit.” The clearance process is in the Section 116 certificate guide.
• Article XIII(1) of the treaty: gains “from the alienation of real property situated in the other Contracting State may be taxed in that other State.” Canada’s inclusion rate is one-half under ITA 38(a), at every level of gain.

What should I do next?

If you already own the property and have never elected, file the election now and count back 16 months (US) or two years (Canada) to see which years can still be recovered. If you’re buying, send the NR6 or the W-8ECI before the first tenant pays, get the ITIN or the Canadian agent lined up, and set two depreciation schedules from day one, one in each currency. Keep the closing statement, because the basis in the home currency at purchase decides the gain you’ll report years later.

• US rental income: 30% withholding or the Section 871(d) election, the US election in depth
• Canadian rental income after moving to the US: NR6 and Section 216, the Canadian election in depth
• Section 116 certificate for selling Canadian property, the clearance certificate on sale
• Form 8288 and FIRPTA withholding, the buyer’s side of the US sale
• The US-Canada tax treaty explained, Articles VI and XIII on real property

Related guides:

• Rental Property Income Tax: How Rental Income Is Taxed, Depreciation, and the Passive Activity Rules

• Cross-Border Rental Property: Tax Rules for Canadians Renting US Property and Americans Renting Canadian Property

• Cross-Border Rental Property: Tax When a Canadian Owns US Real Estate (or Vice Versa)

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