tax on rental and eventual sale income on Canadian Real Estate owned by US resident

QUESTION:

I'm a Canadian citizen living and working in US on a work visa. I may or may not return to Canada. I was thinking of investing in real estate in Canada and so renting out the property. In terms of taxes would I be way better off just investing in US? As a non resident of Canada it appears I would have witholding tax on gross rental income, then would also have to fill tax return in Canada as well as US (taxed as foreign income?) ie taxed 3 time in instead of once?
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david ingram replies:

If you live in California and buy rental real estate in Arizona, Oregon, New York, another 40 states or Canada, you will have to file a tax return for the other jurisdiction.

If you live in no tax form states like Washington, Alaska, Texas, Florida, or Nevada, and invest in real estate in another state with a tax return, you have to file that other state's return even though there is no state tax return in your state.

Although there can be some extra taxation, in general, foreign tax credits mitigate the tax to where you only pay the higher tax.

If you file Canadian form NR6, the Canadian withholding is reduced to 25% of the 'net' rent, rather than 25% of the gross. And in either case, when you file your Canadian return, there is usually a refund.

This older short Q & A might help


My_question_is: Applicable to both US and Canada
Subject: Canadian rental property while working in USA
Expert: [email protected]
Date: Tuesday March 27, 2007
Time: 11:53 AM -0500

QUESTION:

How do I handle my real estate taxes if I am Canadian citizen (nonresident) working the USA with a rental property in Canada?

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david ingram replies:

CANADA

You should have filed an NR-6 first before the first month's rent. Then your agent should have filed a NR-4 Supplementary for the rent and any tax deducted by March 31, 2007 for the 2006 year.

Then you must file a Canadian Rental return with a T776 under Section 216(4) for 2006 by June 30th.

USA

Then you convert the figures on the T776 to US figures and put them on US forms Schedule E and 4562. If there was any income tax paid to Canada, you use US form 1116 to claim that credit on your 1040.

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