US Rental Properties - Taxation

When a non-resident of the US such as Canadian rents a residential property located in the US the non-resident must either:

1) Pay tax of 30% of the gross rent earned by property

or

2) Make an election to have rental income taxed on a net profit basis.

Rental Income Taxed on a Net Profit Basis:

If an election is made to pay tax on a net rental profit, a US personal or corporate tax return must be completed to find out how much US tax is owing. 

To avoid the 30% tax withholding form W8-ECI must be filed and all tax returns must be filed within 16 months of the date the tax return was due. The W8-ECI form must be given to the rental company or person renting your property.

What is profit?

Rental profit is your gross rental income less expenses.

An expense must be ordinary and necessary to be deductible from rental income.

A list of common expenses is found on Schedule E. Click the link below to see common expenses which are considered ordinary and necessary.

http://www.irs.gov/pub/irs-pdf/f1040se.pdf

 Residential rental property in the depreciated on a straight line basis over 27.5 years. Deducting depreciation as an expense of a rental property is not optional in the US. Use it or lose it.

 Click Here for a schedule to report rental income.