New Brunswick Landlord with Nevada Rental Property

## US Rental Property Tax Guide for New Brunswick Landlords: Nevada Edition Owning rental property in Nevada as a Canadian resident creates a unique tax situation—and a valuable opportunity. Nevada's complete absence of state income tax combined with relatively modest property taxes makes it an attractive investment for Canadian landlords. However, this advantage only materializes when you understand and properly manage your obligations to both the Canada Revenue Agency (CRA) and the US Internal Revenue Service (IRS). This guide walks you through the specific tax landscape for New Brunswick residents holding Nevada rental property, with concrete form numbers, rates, and deadlines. ## Why Nevada Is Different for Cross-Border Landlords Nevada stands apart from most US states because it imposes **no state income tax**. This means you will not file a Nevada state return, and you will not pay state tax on your rental income. Your total rental income tax burden will be limited to: - Canadian federal income tax (through the CRA) - Canadian provincial income tax (New Brunswick) - US federal income tax (through the IRS) For comparison, landlords owning property in states like California or New York face combined federal, state, and local tax rates that can exceed 50%. Nevada's lack of state income tax can reduce your overall tax liability significantly—but only if you structure your filings correctly and claim available credits. ## CRA Obligations: Reporting US Rental Income ### Filing Form T776 (Rental Income) Every year, you must report your worldwide rental income to the CRA, including income earned from your Nevada property. You will file **Form T776: Statement of Real Estate Rentals** as part of your personal T1 return. On Form T776, you report: - **Gross rent received** (converted to CAD using the Bank of Canada annual average exchange rate: **1 USD = 1.36 CAD for 2025**) - **Allowable expenses** (mortgage interest, property tax, insurance, repairs, property management fees, utilities you pay, etc.) - **Capital cost allowance (CCA)** if you choose to claim depreciation **Important:** You cannot deduct US federal or state income tax you pay on the property as an expense on Form T776. However, you can claim those taxes as a foreign tax credit (see below). ### Form T1135: Foreign Property Reporting If the fair market value of your Nevada property exceeds **CAD $100,000** at any time during the tax year, you must file **Form T1135: Foreign Income Verification Statement**. This form requires you to report: - The address and description of the property - The country where it is located - The adjusted cost basis (your original purchase price plus capital improvements) - The fair market value in Canadian dollars (using Bank of Canada year-end exchange rates) **Deadline:** Form T1135 must be filed with your T1 return by **June 15** of the following year (though if you file by April 30, you should include it then). **Penalty for late or missing T1135:** $25 per day, up to $2,500 per form, plus potential reassessment of your entire return. ### Claiming a Foreign Tax Credit This is where Nevada's tax advantage becomes important. You will pay US federal income tax on your net rental income. You can claim this tax as a **non-business income tax credit** on Schedule 1 of your T1 return. **How it works:** 1. Calculate your net rental income on Form T776 (gross rent minus Canadian-deductible expenses) 2. Convert this to CAD using the Bank of Canada annual average exchange rate 3. Calculate US federal income tax owing on that income (using the US tax brackets for non-resident aliens) 4. Claim the US federal tax you actually paid as a credit against your Canadian federal tax This credit ensures you do not pay tax twice on the same income. Since Nevada has no state income tax, you will not have a Nevada state tax credit to claim. ## IRS Obligations: US Federal Reporting ### Obtaining an ITIN Before you can file a US tax return on your Nevada rental income, you must obtain an **Individual Taxpayer Identification Number (ITIN)**. This is a nine-digit number issued by the IRS to non-US citizens and non-permanent residents who must file US tax returns. **How to apply:** - Complete **Form W-7: Application for IRS Individual Taxpayer Identification Number** - Include a certified copy of your passport or other identity document - Mail to the IRS address specified on the form, or apply through an IRS-authorized agent in Canada - Processing time: 6–11 weeks - Cost: Free Once you receive your ITIN, keep it for all future US returns. ### Filing Form 1040-NR As a non-resident alien with US rental income, you must file **Form 1040-NR: U.S. Nonresident Alien Income Tax Return** with the IRS each year. On Form 1040-NR, you will: - Report your Nevada rental income on **Schedule E (Supplemental Income and Loss)** - Claim rental expenses (same expenses deductible in Canada: mortgage interest, property tax, insurance, repairs, depreciation, etc.) - Calculate your net taxable rental income - Pay US federal income tax at graduated rates (currently 10%, 12%, 22%, 24%, 32%, 35%, 37% depending on income level) **Key point:** The US taxes *net* income, not gross rent. This is different from Part XIII withholding (see below). ### Schedule E: The Rental Income Schedule On **Schedule E**, you report: - Property address and location code - Rents received (in USD, not CAD) - Rental expenses (itemized) - Depreciation (if claimed) - Net income or loss The IRS allows you to deduct all ordinary and necessary business expenses, including: - Mortgage interest (but not principal) - Property tax - Insurance - Repairs and maintenance - Property management fees - HOA fees - Utilities you pay - Advertising and tenant-finding costs - Legal and accounting fees - Depreciation (Section 168) **You cannot deduct:** - Canadian provincial or federal income tax - Personal capital gains tax - Loan principal payments ### The Section 871(d) Election This is a critical strategy for Nevada rental property owners. Without this election, the IRS would treat your rental income as "fixed, determinable, annual or periodical" (FDAP) income and impose a **30% gross withholding tax** on all rent you receive. This means the IRS would claim 30% before you even factor in deductions. **Section 871(d) election** allows you to elect to have your rental income taxed as "effectively connected income" (ECI)—meaning you pay tax only on your *net* income (gross rent minus expenses), using graduated tax rates instead of a flat 30%. **How to make the election:** - File a statement with your first Form 1040-NR attached to a timely filed return (including extensions) - The statement should say: "The taxpayer elects under Section 871(d) to be taxed on a net basis on income from real property." - Once made, the election applies to all future years unless you revoke it in writing **Impact:** The Section 871(d) election typically saves New Brunswick landlords thousands of dollars per year by allowing you to deduct expenses and use graduated tax rates rather than paying 30% on gross rent. ### Form W-8IMY or W-9 You may receive tax forms from your property manager, title company, or mortgage lender. If you have an ITIN, you should provide a **Form W-8IMY** (Certificate of Foreign Intermediary Status) or **Form W-8BEN** (Certificate of Beneficial Owner Status for US Tax Withholding) to document your non-resident status and ITIN. Do not sign a W-9 (which is for US citizens and permanent residents only). ## Part XIII Withholding: A Canadian Obligation Here is where cross-border coordination matters. The CRA also has a withholding regime for rent paid to non-residents. **Part XIII withholding:** If you do not file Form **NR6 (Undertaking – Section 216)** with the CRA, the person paying you rent (your property manager or tenant) is required to withhold **25% of gross rent** and remit it to the CRA. **How to avoid unnecessary withholding:** 1. Complete **Form NR6: Undertaking – Subsection 216(4)** 2. File it with the CRA at least 60 days before rent is paid 3. In the form, you undertake to file a Canadian tax return reporting the rental income and pay any tax owing 4. Once CRA approves your NR6, the 25% withholding is eliminated **Important:** Filing an NR6 does not eliminate your