US Vacation Rental property for Canadian - Ask an

Can you tell me what personal use one can have, as a
Canadian, on a property they purchase in Washington
State which they will also use to rent out, both short
and long term to earn money.
Also what taxes must they pay to the US and Canada?
Anything else we should know?
Thanks for your time.
david ingram replies:
You can use the property as much as you want.  However,
the more you use it, the less deductions you will get.
The US says that you can NOT create a loss on a tax
return if you use the property more than 30 days or 10%
of the days rented.  That means that if you rent it for
90 days, you get to use it personally for 9 days
without penalty.
Canada is not as definite but the same concept applies,
particularly if you are using your water front cabin
for all of July and August and trying to rent it out
for Sept to June.
The following may help.
My question is: Applicable to both US and Canada
QUESTION: My wife and I are Canadian residents and are
purchasing a property for rental income purposes in
Florida.  If we mortgage
our Canadian home for the purchase, is the mortgage
interest. tax deductible in
either Canada or the US? Is there any benefit for tax &
estate planning to
having the title registered in a corporation?
david ingram replies:
A way back in 1967 I was the Winnipeg Manager for a
company called Gulf
America Land Corporation.  We sold over two thousand
Florida lots to
Canadians in Cape Coral, Florida.  About 8 years ago, I
picked up a copy of
Sunset Magazine in a doctor's office and they were
saying that Cape Coral
was the number one Retirement Community in North
But enough of that.  If you borrow the money in Canada
or the US, the
interest will be deductible.  The advantage of
borrowing in Canada is that
you will know what your payments will be in Canadian
However, I am one of the people who believes that the
Canadian Dollar is
going to go close to par with the US again as it was in
the past.
For instance, if you had bought your Florida Condo
three years ago with 100%
borrowed Canadian Dollars, you would have paid almost
30% MORE than it is
worth today.  I think there is another 10 to 20% there.
However, as our dollar rises, our exports will slow
down because the US
importers are paying 25 to 30% more for most imports
than they were three
years ago and if our dollar goes up more, our exports
to the US are bound to
slow down and this will change our economy at the same
A good bet would be to borrow half in Canada and get a
50% mortgage in
Florida.  That will keep you in the middle.
Don't even think of a corporation and shoot anyone who
suggests it to you.
You will not save "any" tax, Canada will tax you on the
benefit you receive
for personal use (new law in this case for new
purchases - old ones are
grand fathered) and you will be paying an extra $2,000
a year for
accounting, tax returns and annual reports in two
countries and one state.
For a while, there was an idea that Canadians should
have their US property
in a Corporation for US estate tax purposes.  That
became a useless idea in
Jan 1996 (retroactive to Nov 1988) with amendments to
the US / Canadian
Income Tax Convention (treaty) which allowed US estate
tax to be credited to
Canadian Capital Gains Tax (and vice versa) on the
death of an individual.
You will both have to get US identification numbers
called an ITIN for
Individual Taxpayer Identification Number.
You get this by filling in form W-7 -
However, since Dec 17, 2003 you can not get the number
in advance.  You have
to submit the application with your filled in US 1040NR
income tax return.
AND, with a US rental of real property, you have to
fill in a US rental
return or the fine can be a minimum of $1,000.
Luckily, it is in Florida and not Arizona or California
where you would be
filling in a State return as well.
After filling the US 1040NR and Schedule E in, you have
to transpose the
figures (in Canadian funds) to schedule T776 and add
the figures to your
Canadian T1 return.
Glad to look after the returns by fax, snail mail,
email or courier  for you
when the time comes.  That is what we do.
Answers to this and other similar  questions can be
obtained free on Air
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