New Brunswick Landlord with Oregon Rental Property

# US Rental Property Tax Guide for New Brunswick Landlords: Oregon Edition ## Overview: Why This Matters for New Brunswick-Based Owners As a New Brunswick resident owning rental property in Oregon, you operate in a unique tax space. Oregon has relatively high state income tax (9.9%), combined with federal US taxation and Canadian reporting requirements. Unlike some US states with no income tax, Oregon treats non-resident landlords as taxable on rental income, requiring you to file on three tax jurisdictions simultaneously: Canada Revenue Agency (CRA), the US Internal Revenue Service (IRS), and the State of Oregon Department of Revenue. This is not optional. The Canada-US tax treaty exists, but it does not eliminate your filing obligations—it only prevents double taxation through foreign tax credits. Understanding the sequence and mechanics of each filing will save you thousands in unnecessary withholding and penalties. ## Part 1: CRA Obligations for New Brunswick Landlords ### T776 Form: Reporting Rental Income You must report all worldwide rental income on your Canadian tax return, regardless of where the property is located. In New Brunswick, this is done using **Form T776 (Statement of Real Estate Rentals)**. **Key points:** - File T776 even if you had a loss in the year - Report gross rental income in Canadian dollars using the **Bank of Canada annual average exchange rate** (2025: 1 USD = 1.36 CAD) - Deductible expenses include mortgage interest, property tax, insurance, repairs, management fees, and utilities - You cannot deduct principal payments on the mortgage - **Depreciation (capital cost allowance)** is claimable in Canada and affects adjusted cost basis on sale Example: If you collected USD $15,000 in gross rent in 2024, report CAD $20,400 (USD $15,000 × 1.36) on T776. ### T1135: Foreign Property Reporting If the fair market value of your Oregon property exceeds CAD $100,000, you must file **Form T1135 (Foreign Income Verification Statement)** with your annual tax return. - Report the **total fair market value** of the property in Canadian dollars - File only if the aggregate value of all foreign property exceeds CAD $100,000 - Failure to file T1135 results in a **minimum penalty of CAD $250** and up to CAD $2,500 ### Foreign Tax Credit: Avoiding Double Taxation This is critical. You will pay taxes in Oregon and potentially the US federal level. Canada allows a **foreign tax credit (FTC)** to prevent paying tax twice on the same income. **How it works:** 1. Calculate Canadian tax on worldwide income (including the Oregon rental income) 2. Calculate the foreign tax paid to the IRS and Oregon 3. Claim the lower of: (a) foreign tax paid, or (b) Canadian tax attributable to foreign source income 4. Use **Form T2209 (Federal Foreign Tax Credits)** to claim the credit against your Canadian federal tax 5. New Brunswick also allows a provincial foreign tax credit on its own form **Important:** The exchange rate used for the credit must match the rate used to report income. ## Part 2: IRS Obligations for Non-Resident Alien Landlords ### Obtaining an ITIN You cannot use your Canadian Social Insurance Number (SIN) to file US tax returns. You must apply for an **Individual Taxpayer Identification Number (ITIN)** from the IRS. - Form: **W-7 (Application for IRS Individual Taxpayer Identification Number)** - Mail to: IRS address on the form (or file with your first US return) - Processing time: 5–9 months if mailed; faster if filed with a US return - Cost: Free - ITIN format: 9XX-XX-XXXX Once you have an ITIN, use it on all US federal and Oregon state returns going forward. ### Form 1040-NR: Your US Federal Return Non-residents file **Form 1040-NR (U.S. Non-Resident Alien Income Tax Return)**, not the standard 1040 used by US citizens and residents. **Key differences from 1040:** - You report only US-source income (rental income is US-source) - Filing deadline: **June 15** (extended from April 15 for non-residents); further extension available to October 15 - Use **Schedule E** to report rental property income and expenses **On Schedule E, report:** - Gross rental income (in USD) - Mortgage interest (deductible) - Property taxes - Repairs and maintenance - Insurance - Utilities and HOA fees - Property management fees - Depreciation/MACRS (US depreciation method) - **Do NOT claim personal exemptions** as a non-resident ### Section 871(d) Election: Avoid 30% Withholding Without action, the IRS treats non-resident rental income under **Section 881**, which subjects gross rents to **30% withholding** by the tenant or property manager. **Section 871(d) election** lets you elect to be taxed as if you were a resident—taxed on **net income** (after deductions) at graduated rates instead of 30% of gross. - File **Form 8288-B (Certificate of Withholding – Real Property Dispositions)** and attach a statement electing to treat Oregon rental income under Section 871(d) - File this with your first 1040-NR return - Alternatively, use **Form W-8IMY (Certificate of Exemption from U.S. Withholding on Foreign Partners' Effectively Connected Income)** if filing through a property manager - Once elected, IRS withholding ceases, but you are responsible for quarterly estimated tax payments (Form 1040-ES-NR) **Why this matters:** If you earned USD $15,000 gross in rents: - Without election: 30% withholding = USD $4,500 owed immediately to IRS - With election: Withholding ceases; you pay tax only on net income after deductions ### Quarterly Estimated Tax Payments After making the Section 871(d) election, you must file quarterly estimated tax payments to avoid penalties. - Form: **1040-ES-NR** - Dates: April 15, June 15, September 15, January 15 (four payments per year) - Each payment due by the 15th of the month ## Part 3: Oregon State Tax Obligations ### Oregon Non-Resident Filing Requirement Oregon taxes non-residents on Oregon-source income. This includes rental income from Oregon real property. - Oregon income tax rate: **9.9%** (top marginal rate) - File: **Form 40-N (Oregon Non-Resident Individual Income Tax Return)** - Deadline: **June 15** (aligned with federal non-resident deadline) ### Oregon Form 40-N: What to Report - Report Oregon rental income in USD - Claim same deductions as federal return (mortgage interest, property tax, insurance, repairs, depreciation) - Oregon allows you to claim a **pro-rata share of federal foreign tax credit** (federal FTC divided by federal taxable income × Oregon taxable income) ### Oregon Property Tax Oregon imposes annual property tax on real estate at an **effective rate of approximately 0.97%** of assessed value (varies by county). This is paid to the county assessor, not included on income tax returns. - Assessed value resets annually; your property manager or county assessor can advise the amount - This is **fully deductible** on both your 1040-NR Schedule E and Form 40-N - Pay directly to the county or through escrow with your mortgage lender ## Part 4: Selling the Property ### FIRPTA: Reporting Sales of Real Property by Non-US Persons When you sell your Oregon property, the US imposes **FIRPTA (Foreign Investment in Real Property Tax Act)**, which requires the buyer to withhold **15% of the sales price** and remit it to the IRS within 10 days of closing. - This withholding applies regardless of gain or loss - File **Form 8288 (U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests)** within 30 days of sale to report the transaction - Your Canadian adjusted cost basis (including depreciation recapture) determines your reportable gain on your final 1040-NR - Report the sale on Schedule D (Capital Gains and Losses) Coordinate with a cross-border tax accountant at least 90 days before closing to plan tax-efficient disposition. ## Part 5: Key Deadlines for New Brunswick Landlords (2025 Tax Year) | Deadline | Form / Task | Jurisdiction | Notes | |