New Brunswick Landlord with Ohio Rental Property

## US Rental Property Ownership in Ohio: A New Brunswick Landlord's Guide As a New Brunswick resident owning rental property in Ohio, you operate in a three-tax-jurisdiction environment: Canada (federal and provincial), the United States (federal), and the State of Ohio. Each jurisdiction has distinct reporting requirements, filing deadlines, and tax rates. Understanding how these overlap—and where they conflict—is essential to avoid penalties and optimize your after-tax rental income. This guide walks you through your Canadian and US tax obligations, step by step. ## Why This Combination Matters New Brunswick has no provincial property tax, which is one reason why many Maritime landlords invest in US real estate for yield. However, this advantage disappears when you add Ohio's combined state and local property tax burden (averaging 1.59% effective rate statewide) and income tax (3.99% state rate). More importantly, the Canada Revenue Agency (CRA) and the Internal Revenue Service (IRS) have different definitions of what counts as "rental income," different depreciation rules, and different withholding requirements. If you file in only one jurisdiction, you'll create a compliance gap that triggers either Canadian back-taxes or US penalties—or both. ### The Three-Jurisdiction Reality - **CRA** views you as a Canadian resident earning worldwide income - **IRS** views you as a non-resident alien earning US-source income - **State of Ohio** views you as a non-resident person owing Ohio income tax on Ohio-source rent Each requires separate forms, separate calculations, and separate deadlines. --- ## CRA Obligations: Reporting Your Ohio Rental Income ### Report on Form T776 (Statement of Real Estate Rentals) You must report all rental income and expenses from your Ohio property on **Schedule 11 (Form T776)** when you file your Canadian personal tax return (Form T1 General). **What to include:** - Gross rents collected (converted to CAD using the Bank of Canada annual average exchange rate: 1 USD = 1.36 CAD for 2025) - Property tax paid (Ohio 1.59% rate, converted to CAD) - Mortgage interest (if applicable, converted to CAD) - Property management fees - Utilities, maintenance, repairs, and insurance - Advertising and legal fees **What you cannot deduct:** - Capital cost allowance (CCA) on the building—though you are permitted to claim it, many landlords choose not to, as CCA recapture at sale can be punitive - Mortgage principal repayment - Furniture, fixtures, or appliances purchased for more than $500 (these are capital assets) ### Foreign Tax Credit: Avoiding Double Taxation You will pay tax to both Canada and the United States on the same Ohio rental income. The CRA allows a **foreign tax credit** under section 126(1) of the *Income Tax Act*. Here's how it works: 1. Calculate your Canadian tax on the rental income 2. Calculate your US tax (both federal and Ohio state) 3. Claim the lesser of: - US tax actually paid, or - Canadian tax on that foreign income **Important:** You can only claim US federal and Ohio state income taxes—not Ohio property taxes or mortgage interest. Property tax is a property-tax credit under US law, not an income tax. ### Form T1135: Foreign Property Reporting If the fair market value of your Ohio rental property exceeds **CAD $100,000** at any time during the tax year, you must file **Form T1135 (Foreign Property Declaration)** with your tax return. The threshold is the greater of: - Fair market value at December 31 - Fair market value at the time of acquisition **Penalty for not filing:** $100 per month of non-compliance, up to $2,400 per year. ### Exchange Rate Conversion Use the **Bank of Canada annual average exchange rate** for the tax year. For 2025, use 1 USD = 1.36 CAD. (The CRA updates this rate each December for the following year.) Do not use the daily exchange rate on the date of receipt. --- ## IRS Obligations: Non-Resident Alien Reporting As a Canadian resident, the IRS treats you as a **non-resident alien** for US income tax purposes. You do not have a Social Security Number (SSN) and do not file a standard Form 1040. Instead, you file **Form 1040-NR (U.S. Nonresident Alien Income Tax Return)**. ### Obtain an ITIN (Individual Taxpayer Identification Number) Before filing any US return, you must apply for an **ITIN (Individual Taxpayer Identification Number)** using **Form W-7** (Application for IRS Individual Identification Number). You can file Form W-7 with your first Form 1040-NR. Processing typically takes 2–3 weeks. **Do not use your Social Insurance Number (SIN) on US tax forms.** ### File Form 1040-NR and Schedule E - **Form 1040-NR** is the main return for non-resident aliens - **Schedule E (Supplemental Income or Loss)** reports the rental income and expenses - You must elect **Section 871(d)** (see below) to avoid a 30% withholding on gross rents **What to report on Schedule E:** - Address of the Ohio property - Gross rents (in USD; do not convert to CAD) - Repairs, utilities, property tax, insurance, mortgage interest, management fees - A net rental profit or loss ### Section 871(d) Election: Critical to Your Filing By default, non-resident aliens are subject to a **30% withholding tax on gross rents** under section 871(a) of the US Internal Revenue Code. This withholding applies *before* deductions, which means you pay 30% of gross rent regardless of whether you have a net profit or loss. **Section 871(d) Election** allows you to elect "net-basis taxation"—meaning you pay tax only on net rental income (rent minus deductions). This election can save thousands of dollars. **How to file the election:** On your Form 1040-NR, in Part II (Section 871(d) election), check the box indicating you elect to treat rental income as net-basis income. Attach a statement to your return confirming that: - You own the property - The rental income is US-source income - You are electing Section 871(d) treatment **Critical timing:** You must file this election either: - With your first Form 1040-NR, or - By June 15 of the tax year following the year you first earned rental income Do not wait until later years; a missed deadline forfeits the election. ### IRS Withholding vs. CRA Part XIII Withholding These are two separate withholdings: - **IRS withholding:** 30% on gross rent (unless Section 871(d) is elected), withheld by your US property manager or tenant - **CRA Part XIII withholding:** 25% on gross rent if you do not file Form **NR6** (Undertaking to File an Income Tax Return for Non-Residents) with the CRA **File Form NR6 with the CRA** to eliminate the 25% Part XIII withholding. This form notifies the CRA that you will file a Canadian tax return reporting the rental income. Once filed, the CRA advises the US property manager (or their Canadian agent) to stop withholding Part XIII tax. ### Form 1040-NR Filing Deadline - **Due date:** June 15 of the year following the tax year (not April 15, as for US residents) - **2024 tax year return due:** June 16, 2025 - **Extension available:** You can request an automatic 6-month extension using **Form 4868**, due by June 15, extending your deadline to December 15 --- ## Ohio State Income Tax Obligation ### Non-Resident Income Tax Filing Ohio imposes a state income tax of **3.99%** on all non-resident persons earning Ohio-source income. Rental income from Ohio property is 100% Ohio-source income. You must file **Ohio Form IT-1040-NR (Non-Resident and Part-Year Resident Income Tax Return)** with the Ohio Department of Taxation. **On this form, you report:** - Gross rent received - All deductions related to the property (same as on Schedule E) - Net income - Ohio income tax owed (net income × 3.99%) ### Credit Against Federal Taxes Ohio allows a **credit for US federal income tax paid**, but only to Ohio residents and full-year Ohio residents. As a non-resident, you do not qualify for this credit. However, you may be able to claim a credit for Part XIII withholding paid to Canada (if