Taxes are the number one thing that stops Canadians from pulling the trigger on a U.S. investment property. I get it — the idea of filing in two countries sounds complicated and expensive. But once you understand how it actually works, it's manageable. And the Canada-U.S. tax treaty is specifically designed to make sure you're not paying twice.
This is not tax advice — you should work with a cross-border accountant before you buy. But this is a plain-English overview of what you're dealing with, so you can walk into that conversation knowing what questions to ask.
Step one: get an ITIN
Before you can file anything in the U.S., you need an Individual Taxpayer Identification Number (ITIN). This is the IRS equivalent of a Social Insurance Number for non-U.S. residents. You apply using Form W-7, and it typically takes 6–8 weeks to process. Your cross-border accountant can handle this for you.
You only need to do this once. Once you have your ITIN, you use it for every U.S. tax filing going forward.
What you file in the U.S.
As a non-resident alien earning rental income in the U.S., you file Form 1040-NR (Non-Resident Alien Income Tax Return) annually. This covers your U.S. rental income and expenses — mortgage interest, property management fees, repairs, depreciation, insurance, property taxes.
The U.S. taxes you on your net rental income — gross rents minus allowable expenses. The federal rate for non-residents on rental income is generally 30% of gross rents, OR you can elect to treat it as "effectively connected income" and be taxed at graduated rates on net income after deductions. The second option almost always results in less tax — your accountant will advise which applies to your situation.
Ohio also has a state income tax on rental income. Ohio's rates are relatively low and you deduct this on your Canadian return.
What you file in Canada
Canada taxes residents on worldwide income. That means your U.S. rental income goes on your Canadian return. But here's the key: you get a Foreign Tax Credit for taxes you already paid in the U.S. You're not taxed twice — you're taxed once, at whichever country's rate is higher.
In practice, Canadian rates are generally higher than U.S. rates for rental income. So you'll pay U.S. tax first, then top it up to the Canadian rate. You don't end up paying the full tax in both countries.
FIRPTA: when you eventually sell
FIRPTA (Foreign Investment in Real Property Tax Act) applies when a non-U.S. resident sells U.S. real estate. The buyer is required to withhold 15% of the sale price and send it to the IRS as a prepayment of your capital gains tax. This sounds alarming but it's just a prepayment — not a final tax.
When you file your U.S. return for the year of the sale, your actual capital gains tax is calculated. If 15% was withheld but your real tax is lower, you get the difference back as a refund. Your accountant handles this routinely.
On the Canadian side, you also declare the capital gain and receive a foreign tax credit for U.S. capital gains tax paid. Again — no double taxation.
What about an LLC?
Some investors buy through a U.S. LLC for liability protection. The tax treatment depends on how the LLC is structured — single-member LLCs are typically treated as "disregarded entities" and taxed the same as personal ownership. Multi-member LLCs are treated as partnerships. Each has implications for both U.S. and Canadian filing. This is a conversation to have with both a U.S. real estate attorney and a cross-border accountant before you buy.
The bottom line
The tax picture is manageable. Most of our investors pay a cross-border accountant $500–$1,500 per year to handle both returns. When your property is generating $5,000–$8,000 CAD annually in cash flow, that's a reasonable cost of doing business. And unlike Canadian rental income, U.S. rental properties benefit from depreciation deductions that can significantly reduce your taxable income — sometimes to zero on paper even while you're cash-flowing positively.
Get a good cross-border accountant early. We can refer you to specialists who work with Canadian investors in Ohio specifically.
Want a referral to a cross-border accountant we trust? Ask us on the call.
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