Canadians With U.S. Rental Or Investment Income

Determine whether the U.S.-source income creates a U.S. federal filing obligation for the Canadian resident.
File Form 1040-NR where required for U.S.-source income and other income subject to U.S. taxation.
Report U.S. rental income and expenses on Schedule E (Form 1040), as applicable.
Consider the IRC §871(d) election for a nonresident alien who owns U.S. rental property and elects to treat rental income as effectively connected income, allowing eligible expenses to be deducted.
Review the 30% withholding tax rules that may apply to U.S. rental income paid to a nonresident owner when the §871(d) election has not been properly made.

Review Form W-8BEN requirements for establishing foreign status and claiming applicable treaty benefits on U.S.-source income.
Review Forms 1042 and 1042-S for U.S.-source payments subject to withholding and reporting.
Review Forms 1099 received for U.S. interest, dividends, brokerage transactions, or other reportable payments.
Report and calculate depreciation on U.S. rental property using applicable U.S. tax rules.
Review state and local income tax filing requirements for the state where the rental property or investment income is located.
Review the tax consequences of the sale of U.S. real property, including FIRPTA withholding requirements.
Where applicable, review Form 8288 and Form 8288-A relating to FIRPTA withholding on the sale of U.S. real property by a foreign person.
Review Form 8288-B where an application for a withholding certificate may be appropriate.
Determine whether U.S. capital gains, dividends, interest, rental income, or other investment income is subject to U.S. federal or state taxation.
Review estate and gift tax considerations for Canadian residents holding U.S. real property or certain U.S.-situs assets.
Maintain records of U.S. income, expenses, property costs, depreciation, withholding taxes, brokerage statements, Forms 1099/1042-S, and exchange rates.

File T1 General and report U.S.-source income if the individual is a resident of Canada for tax purposes.
Report U.S. rental income and allowable rental expenses on the Canadian return using the applicable Canadian tax rules.
Report U.S. interest, dividends, capital gains, and other investment income in Canadian dollars.
Calculate Canadian capital gains or losses on the disposition of U.S. investments or U.S. real property using Canadian tax rules.
Apply the appropriate foreign exchange rates when converting U.S.-dollar income, expenses, proceeds, and adjusted cost base into Canadian dollars.

Claim a foreign tax credit for qualifying U.S. federal and state income taxes paid, subject to Canadian foreign tax credit limitations.
File Form T1135 (Foreign Income Verification Statement) where applicable if the U.S. property or other specified foreign property meets the Canadian reporting requirements.
Review whether U.S. rental real estate qualifies as specified foreign property for T1135 purposes and determine the appropriate reporting treatment.
Report foreign interest, dividends, rental income, and other income even where U.S. withholding tax has already been deducted.
Review the Canadian tax treatment of U.S. brokerage accounts, stocks, ETFs, mutual funds, and other investments.
Review the Canadian treatment of U.S. depreciation, recognizing that Canadian CCA rules generally apply rather than simply adopting the U.S. depreciation calculation.
Review the Canadian tax consequences of the sale of U.S. rental property, including the capital gain, recapture where applicable, foreign exchange impact, and foreign tax credit.
Review U.S. estate tax exposure and the related Canadian tax considerations for significant U.S.-situs assets.
Maintain documentation for U.S. tax returns, Forms 1042-S/1099, withholding certificates, rental statements, property expenses, purchase and sale documents, and U.S. taxes paid.