New Brunswick Landlord with Georgia Rental Property

## Tax Guide for New Brunswick Landlords Owning Rental Property in Georgia Owning rental property in the United States as a Canadian resident creates a unique tax situation. You must satisfy both Canada Revenue Agency (CRA) requirements and Internal Revenue Service (IRS) requirements simultaneously. This guide covers the essential tax obligations for a New Brunswick resident who owns rental property in Georgia. ## Why This Combination Matters As a New Brunswick resident, you are a Canadian tax resident. Georgia is a state with its own income tax system (5.75% on non-resident rental income). The intersection of Canadian federal tax, New Brunswick provincial tax, and US federal and Georgia state tax means your rental income is potentially taxed in multiple jurisdictions. Without proper planning and filing, you face: - **Part XIII withholding** of 25% by the US payor on gross rents (if you don't file an NR6 form) - **US federal withholding** of 30% on gross rents (if you don't elect Section 871(d) treatment) - **Georgia state income tax** of 5.75% on rental income - **Canadian federal and provincial income tax** on worldwide income - **Foreign exchange exposure** on USD-denominated income The key to managing this is filing correctly with both the CRA and IRS, claiming foreign tax credits, and understanding which expenses reduce your net taxable income in each jurisdiction. ## CRA Obligations: Reporting US Rental Income ### Filing Form T776 (Statement of Real Estate Rentals) You must report all US rental income on your Canadian tax return using **Form T776**. This form captures: - Gross rents received (converted to Canadian dollars) - Deductible expenses - Net rental income or loss **Currency conversion:** Use the Bank of Canada annual average exchange rate for the tax year. For 2025, the benchmark rate is approximately **1 USD = 1.36 CAD**, though you may use the daily rate on the day you received each payment if you prefer consistency. Convert both income and expenses to Canadian dollars using the same method for the entire year. ### Form T1135 (Foreign Property Declaration) If the fair market value of your Georgia rental property exceeds **CAD $100,000** at any time during the year, you must file **Form T1135** with your tax return. This form requires: - Property address and description - Fair market value at year-end (in Canadian dollars) - Cost basis (in Canadian dollars) - Rental income for the year Failure to file Form T1135 when required results in a **minimum penalty of CAD $100** per month of non-compliance (maximum CAD $2,400 per year), regardless of whether you owe additional tax. ### Foreign Tax Credit (FTC) You can claim a **non-business income foreign tax credit** on **Schedule 1** of your Canadian tax return for: - US federal income tax withheld or paid - Georgia state income tax paid - Part XIII withholding tax paid to the CRA The credit is limited to the lesser of: 1. Taxes actually paid to the US (federal + Georgia) 2. Canadian tax on the same income **Example:** If your net US rental income (after expenses) is CAD $10,000 and Canadian tax on that amount is CAD $3,000, but you paid CAD $2,500 in US and Georgia taxes, you claim a FTC of CAD $2,500. You owe no additional Canadian tax on that income. ### Deductible Expenses On Form T776, deduct legitimate rental expenses including: - Mortgage interest (not principal) - Property taxes - Property management fees - Insurance - Repairs and maintenance - Utilities (if you cover them) - Advertising for tenants - Legal and accounting fees - Depreciation (capital cost allowance, or CCA) **Important:** Do not deduct expenses already deducted on the US return. Use consistent accounting treatment in both countries. ## IRS Obligations: US Federal Taxation ### Obtain an ITIN As a non-US resident alien, you need an **Individual Taxpayer Identification Number (ITIN)** to file US tax returns. Apply using **Form W-7** (Application for IRS Individual Taxpayer Identification Number). Mail Form W-7 with a copy of your Canadian passport (or other identity document) to the IRS. Processing takes 4–6 weeks. You may apply online if you have certain credible identification. ### File Form 1040-NR (US Non-Resident Alien Tax Return) You must file **Form 1040-NR** with the IRS by **June 15** (three-month extension automatically granted to non-residents; you may request a further two-month extension to August 15). **Key components:** - Report gross rental income on **Schedule E (Supplemental Income or Loss)** - Deduct allowable US rental expenses - Report net US source income - Apply the Section 871(d) election (see below) ### Section 871(d) Election Without any election, the IRS imposes a **30% withholding tax on your gross rents**, meaning you lose 30% of every payment before you deduct a single expense. This is inefficient. Instead, elect **Section 871(d) treatment** by filing **Form 8288-B** with your 1040-NR. This allows you to: - Report net rental income (after deducting expenses) instead of gross income - Pay tax only on your profit, not on gross rent - Reduce withholding burden on your property manager To use Section 871(d), you typically have your property manager withhold and deposit **15% of net rental income** to the IRS quarterly, rather than 30% of gross income. ### Schedule E: Real Estate Income and Loss On **Schedule E, Part I**, report: - Rental income (line 3) - Mortgage interest, taxes, repairs, depreciation, and other expenses (lines 5–22) - Net income or loss (line 21) **Schedule E** flows to your 1040-NR total income. Combined with other US source income (if any), this determines your US federal income tax liability. ## Georgia State Income Tax Obligations Georgia taxes non-resident rental income at **5.75%** on net rental income (not gross). ### File Georgia Form IT-605 or IT-606 If your net rental income exceeds Georgia's filing threshold, file either: - **Form IT-605** (Fiduciary Return) if income is held in trust - **Form IT-606** (Nonresident Return) — most common for individual non-resident landlords **Filing deadline:** Same as federal (June 15 for non-residents). **Tax rate:** 5.75% on net income after deducting eligible expenses. Georgia allows deductions for: - Mortgage interest - Property taxes - Repairs and maintenance - Utilities and insurance - Depreciation - Property management fees Keep detailed receipts and invoices for all expenses. Georgia may deny a deduction if you cannot substantiate it. ### Georgia Property Tax Beyond income tax, Georgia imposes property tax on real property. The average effective rate statewide is **0.92%**, though rates vary by county. **Example:** A property valued at USD $300,000 in a county with a 0.92% effective rate incurs approximately USD $2,760 annually in property taxes, or CAD $3,754 (at 1.36 exchange rate). Property taxes are deductible both in Georgia and on your US federal return, and can be claimed on your Canadian Form T776. ## Selling the Property: FIRPTA Considerations When you sell your Georgia rental property, be aware of **FIRPTA (Foreign Investment in Real Property Tax Act Enforcement)**. The buyer's closing agent must withhold **15% of the gross sale price** and remit it to the IRS, unless you obtain a **FIRPTA withholding exemption** by filing **Form 8288-B** before closing. **Example:** If you sell for USD $400,000, the buyer's agent withholds USD $60,000 unless exempted. You claim a credit for this withholding on your 1040-NR when you file. File **Form 8288** (U.S. Withholding Tax Return for Disposition of U.S. Real Property Interests) within **10 days** after the sale closes to report the sale to the IRS. ## Key Deadlines for 2025 | Obligation | Form(s) | Deadline | Jurisdiction | |-----------|---------|----------|---------------| | IRS non-resident return | 1040-NR + Schedule E | June 15, 2025 (extended) | US Federal | | Georgia state return | IT-605 or IT-606 | June 15, 2025