Taxation on Rental Property Income For Snowbirds

Charles Hanes
January 28, 2012

Every year many fortunate Canadians and northern States residence motor on down to south Florida to avoid those harsh winters.  I understand that this winter has been abnormally warm but one or two degrees above freezing, to me, is not what I consider warm.

Many Snowbirds choose to rent while others prefer to buy properties down here and many of those who choose to buy, sometimes rent out their property while enjoying it themselves intermittently.  There is nothing wrong with this but there are certain tax implications that you would want to fully understand prior to doing so.

I talked about the retroactive estate tax and withholding taxes in recent blogs and I thought that I should address today's topic as so many people that I've spoken with and received email comments from, have apparently chosen to go this way.  Hey, if you can rent out your property for short periods of time while you are not using it you can help pay the carrying costs, right?


Even though you are a Canadian citizen and resident, you are subject to U.S. income tax on any
rental income you receive from your U.S. real estate property. To comply with this Internal
Revenue Service (IRS) tax reporting requirement, you can choose one of the following two options:


Option #1: 30% Withholding Tax on Gross Rents 

Have your gross rental income taxed at a flat 30%.  This option does not permit you to deduct any expenses.  As you can see, this can be a very expensive way to go.  The benefit is that under this option, you do not have to file a U.S. tax return to report this rental income. You will still need to report the net rental income on your Canadian tax return. Foreign tax credits can be taken to eliminate double taxation, but it is possible that the full 30% U.S. withholding tax will not be recouped.

Option #2: Net Rental Basis  

You can elect to file a U.S. non-resident income tax return (Form 1040 NR) on a “net” rental income basis and complete Schedule E. Net rental income is defined as gross rents less ordinary and usual expenses including property taxes, mortgage interest, insurance, management fees, utilities, etc. It must also be
noted that, unlike in Canada, U.S. tax laws impose a mandatory deduction for depreciation for U.S. tax filing purposes. The benefit under this option is that your net rental income amount subject to U.S. tax at your marginal tax rate will likely be substantially lower than the gross rental income amount subject to the 30% withholding tax. If electing to pursue this alternative you will have to complete Form W-8ECI to avoid the 30% U.S. withholding tax. Form W-8ECI needs to be submitted to your tenant or to a U.S. agent (not to the IRS).

Again, this information is published here strictly and solely to help you in forming your plans to buy Florida property.  It is NOT intended as legal or accounting advise.  I am neither a lawyer nor an accountant and I bringing you this information simply to assist you in understanding they type of hurdles you can face when contemplating buying a Florida property.

I'm Charles Hanes