For Our Canadian Investors Buying In The US

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Many of our investors are from Canada taking advantage of the historically low real estate prices shutterstock_191737973-1100x733Florida has to offer. While the real estate deals are very lucrative, there are some things that you should be aware of to avoid unnecessary expenses. We’re going to put together a few things in this blog to arm yourself with the basic asset protection tools and some tax implications information.

Per the US tax code, rental income is considered a “passive” activity and not a “trade or business”. For Canadians who own rental real estate in their own name and not under a business can see negative tax ramifications from their cash flow. In a typical lease where your tenant pays rent and utilities, you will have income subjected to a flat 30 percent withholding tax attached to the gross income rather than the net income. Plus, if that wasn’t enough, your real estate taxes, repairs, operating expenses, insurance and principal are not deductible and if paid by the tenant must be included in the gross. This makes most US property managers nervous to work with Canadians investors because if the holdings are not correct, the IRS, (Internal Revenue Service) can make them liable.  Now, if you decide to file a US tax return each year, you can only pay tax on the net income and then receive a refund for any taxes withheld.

1. You can incorporate a trade or business like developing, managing and operating an apartment or commercial building.
2. Or you can have your rental income taxed as if it were connected with a US trade or business.

The second choice is the most common choice. To do this you make your property connected with a trade or business declaring it to a filed US income tax return (1040-NR) .

After you’ve done this, it is permanent and will apply for all future years and future investments. Now you will no longer have to withhold 30 percent of the gross. If you are using a property manager for your properties, you should provide them with a completed IRS FORM w-8ECI  Without this form, your property manager will have to continue to withhold the 30% of your gross rents.
Hopefully this will help you with your current and future investments. If you have more questions concerning investing here in the states, please don’t hesitate to reach out to my brother and me.


Dan Circle

      Dan Oliver

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