Rental income in US for Canadian resident

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Jessica
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Joined: Thu Aug 18, 2016 3:08 pm

Rental income in US for Canadian resident

Post by Jessica »

Does a person who has rental income in the US must file US tax every year, even if first year was not profitable? Also, how are withholdings of the taxes done in the US for rental income?
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Yes, unlike Canada, IRS (and state) require you to file based on INCOME, not whether you owe taxes or not.

So, you need to file, in order to (a) register losses, and track depreciation.

There is no withholding. You are responsible for remitting quarterly estimates of your estimated yearly tax.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Jessica
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Joined: Thu Aug 18, 2016 3:08 pm

Post by Jessica »

Will one be penalized for not filing for the firs year? penalties/interest?
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Since you started this thread saying you will owe no taxes, then why are you worried about penalties.

You cannot submit tax payments without a US tax number. Do you have this?

That's about all I'm going to answer from you at this point. IRS has lots of useful info for those owning rentals.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
ND
Posts: 291
Joined: Thu Feb 21, 2013 5:28 pm

Post by ND »

Jessica- there is no requirement per se to file a US tax return to report rental income, as a matter of fact the default system is withholding at 30% of gross rents. It just usually works out cheaper to file a return and elect on it to do so and pay gradated tax rates on net income, thus allowing deductions. You can start that election any year into the rental but then must continue filing returns each year onward from that first year.

a nonresident alien may NOT make said election for a taxable year in which the taxpayer derives no income from U.S. real property (other than gain from the sale of the USRPI). That means, not only can you not choose to file a US return in such loss year, you actually are not allowed to do so and thus have no basis upon which to file a US return for such loss year. Refer to CCA 200504029

There are also anti-abuse rules that forbid filing a loss return to curb abuse of artificially creating interest deductions.

Now, if you pass the anti-abuse rules, said CCA criteria, you place the rental property into service during the tax year and make said election on your first return, you can OPT to file such return even if not profitable.

If a return is filed there is no longer wh, but give W-8ECI to renter. If return/election isn't filed, buyer does the wh and at 30% gross income.

If there is no tax due, potential penalties that can arise are Florida monthly penalties for a late NIL return if the filer is a corporation, or IRS penalties (steep) if the filer is a partnership. You didn't mention who holds the property.

You'll note that my answer differs from nelsonas answer who said:
Yes IRS (and state) require you to file; So, you need to file; why are you worried about penalties

I do agree that it's advisable to opt to file to move to net income taxation base, register losses, and CLAIM depreciation - as that's clawed back when you sell - whether or not you actually claimed it.
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