US Rental Income Tax Resource for Canadians

So you bought a vacation rental property in the United States....  Now what?


If you are like me you start to realize that the market for renting your vacation property is pretty good.  At least in Scottsdale, AZ it is good.  You also realize that you are pulling in a lot of money and your spidey sense starts tingling that someone might want to see some tax dollars.


In the end the reality is you will likely owe $0 or close to $0 dollars of tax on your US rental.  After all you have expenses as well and you are required to depreciate your property in the United States so in the end there isn't a lot of income.


But if you are like me you need information on the US taxation system on rental properties.  Lucky for you I've done a lot of research and reading in this area so you can save some time.  And this is valuable time saved because we aren't talking about reading the latest John Grisham book, we are talk tax information which is like watching paint dry.


This is what I found most valuable in working towards filling out my 1040NR and schedule E forms for the IRS.

• IRS Residential Rental Property publication - Publication 527.  I have to say this is an excellent and thorough publication put together by the IRS to help you work through your IRS 1040NR tax forms and your schedule E.  I was impressed.
• IRS Depreciation Rules - form 4562  - Depreciation and amortization instructions
• IRS 1040NR Schedule E (Rental income) instructions  http://www.irs.gov/pub/irs-pdf/i1040se.pdf
• Every Landlord's Tax Deduction Guide - by  Fishman J.D., Stephen.  I bought this through my Kindle on Amazon and found it answered any of my final questions after reading the IRS information.  Look it up at your local bookstore or online.  It was worth it.

That is it.  In the end I found this was all I needed.  There is a lot of information and misinformation on the internet and I really have to say it wasted a lot of my time.  You know the IRS stuff is correct and won't be misleading and the book is a well known guide that has been around for years. 

If you are looking for more detailed information you can check out these related posts

Top IRS Resources for doing your 1040NR Tax Return as a Canadian with a Vacation Rental Property in the United States

US Tax requirements if you rent out your US Property as a Canadian

Three good US Travel Tips for Canadians

3 US Travel Tips for Canadians 

We have been spending a lot of time in the US since purchasing a Condo (vacation rental) in Phoenix a few years back.  It is comforting to see how many things are the same or similar as they are in Canada (in my case Winnipeg, Manitoba Canada).  There are a lot of the same stores, laws, traditions etc.  But there are some things that may seem odd to Canadians.  


Here are a few tips to make things a little easier:

1. When prompted for your ZIP Code you can use the digits in your postal code followed by two 0's for you ZIP code and it works!!  for example if your Postal Code is R2Y 1W1 you can convert it to a ZIP code at the pump by putting in 21100.  This has saved a lot of grief down south at the pumps.
2. Car Rentals - you can save boat loads of money on long term rentals by renting just outside the airport.  In our case we go to a Budget rent a car outside of Phoenix Sky Harbor airport and rake in the savings.
3. Rent Golf Clubs off the golf course - OK, this may not be important for some people but for us avid golfers this is gold.  Most of the time I bring my clubs but with the cost these days it is almost worth just renting if you are only going for a few days and the rentals are often better clubs than you use at home!  In Scottsdale I rented from a company called Prosets Golf which is located on Frank Lloyd Wright Blvd.  I went with the top of the line Callaway's my last rental and like them so much I actually bought a set at home.  The price for rental was only $25 for the round.  Cheap!  Price will depend on when you rent remember but overall it is much cheaper than renting at the course.

Hope those tips help.  The ZIP code at the pump is gold!  pass it on.

Selling your US Rental Property

Selling Your Property as a Canadian citizen

There may be withholding tax!!   These are bad words!

There may be withholding tax!!   These are bad words!

If a Canadian sells real estate located in the U.S. , a withholding tax of 10% of the gross sales price is normally payable under FIRPTA (the Foreign Investment in Real Property Tax Act of 1980). 

The tax withheld can be offset against the U.S. income tax payable on any gain realized on the sale, and refunded if it exceeds the tax liability. 

The 10% withholding requirement on the gross sales price applies regardless of the sellers adjusted basis in the property.

You may be able to avoid the 10% withholding tax, here is how:

Exception 1: Sales price less than U.S. $300,000

First, withholding under FIRPTA will not apply if the property is sold for less than U.S. $300,000, and the purchaser intends to use it as a principal residence.

For this exception to apply, the purchaser must have definite plans to reside at the property for at least half of the time that the property is in use during each of the two years following the sale. However, the gain on the sale will still be taxable in the U.S., and a U.S. tax return must therefore be filed. What this means is if you sell your vacation rental or any property in the US for less than $300,000 there is no withholding but you still may pay tax on the sale.

Exception 2:

Withholding certificate The second exception allows for reduced, or eliminated withholding, where the Canadian obtains a withholding certificate from the IRS on the basis that the expected U.S. tax liability will be less than 10% of the sales price. The certificate will indicate what amount of tax should be withheld by the purchaser rather than the full 10%. A withholding certificate issued after the transfer of the property may allow the seller to receive an early refund.

Remember you need an ITIN when you sell! There is no getting around this so get one beforehand so you don’t have to wait!  See these articles for more information

As a Canadian do I Really Need an IRS ITIN (Individual Taxpayer Identification Number)

Where can you get an ITIN in Canada?

Where can you get an ITIN in Canada?

Where do you go for an ITIN in Canada?  Lost?  Hopefully I can help.

If you've gotten to this post you are likely looking to get an ITIN (Individual Taxpayer Identification Number) and are a bit lost on where to go to get one.  Don't worry, I was in the same boat about a year ago and I've finally worked my way through the process.


If you are still unsure whether or not you need an ITIN you can read my post on here:
Do You Need an ITIN

If you are still thinking you need an ITIN after reading that post then you will find that it isn't as big a deal as you might think.  It may cost you some money but the process itself is not a major undertaking.  


Once you get all your information together including your 1040NR tax return you need to meet with an IRS accredited Acceptance Agent.  You will be surprised how few there are in Canada!

Here is a listing of the Canadian Acceptance Agents for the ITIN:

http://www.irs.gov/individuals/article/0,,id=96839,00.html


Once you find your agent, set up an appointment and they will walk you through the process.

More about the ITIN Process from the IRS:

Understanding your IRS Individual Tax Identification Number (IRS Publication)
http://www.irs.gov/pub/irs-pdf/p1915.pdf

Good Luck

US Taxes 1040NR filed for the first time on my US Vacation Rental Property

It took a while but my taxes are finally in to the IRS.  The rest is up to the IRS.

I'm a few days delinquent in posting this comment but my returns were sent in at the end of March 2012 along with my ITIN application.  I have been told that a response from the IRS will be many months down the road so I will update you with the progress at that time.

If you want to know how I got to this point see this blog post:

How to do your US tax return 1040NR for a vacation rental

If you have stories of your own on filing your 1040NR I would love to hear them.

Thanks

Do you need an ITIN? Advice for Canadians who own U.S. Property

Do you need an ITIN?

If you are Canadian and are wondering whether or not you need an ITIN (Individual Taxpayer Identification Number) here are some of the basic guidelines.

First, I should explain what an ITIN (Individual Taxpayer Identification Number) is for.  An ITIN is a unique nine-digit tax processing number issued by the IRS to individuals required to pay tax or who have a tax reporting requirement to the IRS but do not qualify for a Social Security number.

Who needs an ITIN?

Any U.S. resident (based on days present in the U.S.) or non-resident alien individual who:

• Is required to file a U.S. federal income tax return
• Can be claimed as a dependent on a U.S. federal income tax return
• Does not have and cannot obtain a Social Security number to claim a refund of tax under the provisions of a U.S. tax treaty
• Meets an exception to having to file a U.S. federal income tax return, but requires an ITIN for federal withholding and reporting purposes

Most likely reasons you will need an ITIN:

If you sell your property in the US you need an ITIN.  The buyer (or more likely the realtor for the buyer) has to withhold 30% of your proceeds on sale.  You can get it back through a U.S./Canada tax treaty but you need an ITIN first.  So get one up front.

If you rent out your vacation home you need an ITIN.  The renter or property manager is required to withhold 30% of the rent.  You can only recover that withheld amount if you have an ITIN and report your income from the property on a 1040NR. See here.  Note: when you are renting on VRBO or Homeaway it is likely the renter will not know they are to withhold 30% and remit it to the IRS. 

If you are looking for more information see the following article:

• IRS Resources for completing your ITIN and 1040NR

Real Estate Investing in the US - Globe and Mail Article

I am still excited about the US Real Estate market.  I have one condo that I love and I'm looking for another.
Here is a great Globe and Mail article from the report on business section addressing the US market and where to buy.
I still love Arizona and that is where I'm looking but this article makes some interesting points around owning a property in Las Vegas.  Enjoy.

http://www.theglobeandmail.com/report-on-business/rob-magazine/real-estate-investing-in-the-us/article2316131/