U.S. Real Property rentals


If a Canadian citizen purchases real property in the U.S. are they required to have a U.S. Social Security Number?  Am I correct that my tax liability will be to the U.S., whilst reporting my income to the CRA but with offsetting foreign tax credits due to paying U.S. income tax?  For liability purposes, would it be more beneficial tax-wise to hold the U.S. properties under a Canadian or U.S. corporation?  Thank you.


david ingram replies:

Assuming that you are going to rent the property out, you will need an ITIN (Individual Taxpayer Identification Number).   Fill in a W-7 and submit it with your first tax return or try and get it at the bank where you get your mortgage. 

I do not suggest a corporation in either country unless you want to spend a couple of thousand dollars a year extra on accounting.  As a foreigner with a US corporation, you will need to fill in form 5472 with your 1120 corporation tax return.  Then, becasue the mind and control of the coproration is in teh hands of a Canadian resident, you will need to file again in Canada.

 This older Q & A may help
My wife and I are Canadian citizens and own a rental property (house) in Arizona. 
Do I need to file income tax in the USA? Can we deduct the mortgage interest
and any expenses associated with the rental on our Canadian income tax return?
Thanks and regards,
david ingram replies

If you do not file a US 1040NR with Schedule E and Arizona 140PY or 140NR return, you face
the likely Federal penalties of a $1,000 to $10,000 fine each per year for failure to
report rental income as a non-resident plus 30% of the gross rent with no expenses allowed. 

That is for each of you if you both own the property.  And, I  have never seen a $10,000 penalty.

Then, you will EACH be assesed 30% of the gross rent with no expenses allowed.

(Canada's penalty of  just 25% of the gross rent with no expenses in reverse seems mild in comparison.)

FILE the US returns for every year you have missed.

THEN - There is NO responsibility for you to claim any rental expenses on your
Canadian return.  You can claim them if you wish on form T776.  HOWEVER, you MUST
report the gross rent on line 126 of your T1 if you do not claim expenses and the
net rent if you do,.If there is a legitimate rental loss which has not been created
by your using the unit personally, you can use the loss to reduce your other taxable income.

A Warning.  There is ample evidence that the IRS and CRA are pro-actively sharing
information about these.  And, if you are in a complex and using the unit personally
NEVER talk about the fact you have not filed a US tax return and don't ask a local. 
I personally know of two people who make their living turning in Canadians who
are not filing their US returns.  There is a 10% to 30% reward for turning you
in by filing US form 211. See it at www.irs.gov - click on forms, etc.

If you need help with this, you now know where we are.