Canadians are among the largest foreign holders of US residential real estate — snowbird condos, ski properties, student housing for kids at US colleges, and pure rentals. The US tax rules that come with the deed are not onerous, but they are specific, they apply from the first rental dollar, and the most expensive surprises are saved for the sale. Here is the lifecycle, stage by stage.

Stage one: buying

The purchase itself triggers little US tax, but the structure chosen at closing governs everything after:

  • Personal ownership is simplest and usually best for one or two properties. (Joint spousal ownership has both US estate-tax and Canadian-attribution wrinkles worth a conversation.)
  • A single-member US LLC — the default suggestion of many US realtors — is usually a mistake for Canadians: Canada does not treat the LLC as transparent, which can produce genuine double taxation, and the LLC adds Form 5472 reporting besides.
  • Canadian corporations holding US personal-use property create shareholder-benefit problems at home and unattractive US rates; mostly avoided for personal-use real estate.
  • US estate tax exposure exists for Canadians on US-situs property, moderated by treaty credits tied to the size of your worldwide estate; for valuable properties this belongs in the buying decision, not the obituary planning.

Ten minutes of structuring advice before closing routinely saves years of repair.

Stage two: renting

US rental income of a non-resident faces a default regime of 30% withholding on gross rents — no deductions, no mercy. Nearly every Canadian owner instead makes the net election (section 871(d)), taxing the rental like a business: income minus mortgage interest, property tax, management, repairs and depreciation, at graduated rates. The practical kit:

  • Form W-8ECI to the property manager or tenant, switching off gross withholding;
  • An ITIN (Form W-7) — the IRS taxpayer number for those without an SSN; first-time applications ride along with the first return;
  • An annual Form 1040-NR reporting the net rental result — required even in loss years, both to preserve the election and to bank the losses (and note that depreciation is mandatory in the US calculation, a point that returns at sale);
  • The state return where the property sits, on the state’s own rules;
  • And in Canada: the same income reported again, with foreign tax credits for the US tax — kept aligned only when the two returns are prepared in awareness of each other.

Stage three: selling — FIRPTA

The Foreign Investment in Real Property Tax Act is the part of the lifecycle that genuinely ambushes people. When a non-resident sells US real estate, the buyer must withhold 15% of the gross sale price — not the gain, the price — and remit it to the IRS within days of closing.

On a US$700,000 condo sale, that is US$105,000 held back regardless of whether the actual gain produces a fraction of that in tax. The structural relief valves:

  • Reduced rates apply in defined cases (0% under US$300,000, 10% up to US$1 million) where the buyer will use the property as a residence;
  • A withholding certificate (Form 8288-B), applied for before closing, asks the IRS to cap withholding at the actual expected tax — the single most valuable pre-sale step for most Canadian sellers, but it must be in motion before the closing date;
  • Otherwise, the excess is recovered by filing the 1040-NR for the sale year — a refund that arrives months later.

The gain calculation itself rewards good records: original cost, capital improvements over the years, and the depreciation claimed (or claimable) during the rental years, which is recaptured at sale. Canada taxes the same gain on its side, with treaty credits preventing true double tax — and the pre-2026 planning point for long-held properties, Canada’s principal-residence interaction, deserves its own advice.

Stage four: death, gifts and the long game

Two non-income-tax exposures round out the picture: US estate tax on US-situs assets at death (treaty-moderated, but real for larger estates) and US gift tax on lifetime gifts of US real estate — which, unlike death transfers, enjoy almost no treaty relief and can be triggered by casual intra-family “title tidying”. Adding a child to a deed is a taxable gift of US real property. Families do this constantly; it should never be done un-advised.

The pattern

Each stage has a defined, manageable set of filings — and each stage’s options narrow once the stage is underway. The owners who do this well make three calls: one before buying, one before the first rental year’s filings, and one before agreeing a sale date. The owners who do it expensively make one call, after the FIRPTA withholding has already left the closing proceeds.