Nova Scotia Landlord with Ohio Rental Property

## US Rental Property Tax Guide for Nova Scotia Landlords: Ohio Edition As a Nova Scotia resident, owning rental property in Ohio creates a unique dual-tax situation. You are subject to Canadian federal and provincial tax on worldwide income, **and** you must file with the US Internal Revenue Service (IRS) and the State of Ohio. Understanding both systems—and how they interact—is essential to avoid penalties and optimize your tax position. This guide walks you through your obligations to the Canada Revenue Agency (CRA), the IRS, and Ohio's Department of Taxation. ## Why Nova Scotia + Ohio Creates Tax Complexity Nova Scotia residents are taxed by the CRA on all income worldwide, including US rental income. The US also taxes you on income derived from US sources. To prevent double taxation, you can claim foreign tax credits on your Canadian return for US taxes paid. However, the calculation is nuanced: - US rental income is reported in USD; you must convert to CAD at the CRA-prescribed exchange rate - Each country has different deductions (US depreciation rules differ from Canadian CCA) - Both jurisdictions require separate filings with different deadlines - Ohio imposes an additional state income tax on top of federal US tax **Key principle:** You are a "non-resident alien" for US tax purposes, which triggers different filing rules and withholding rates than a US citizen or permanent resident would face. ## CRA Obligations for Nova Scotia Landlords ### Filing Your Canadian Tax Return (Form T776) You must report all US rental income on your Canadian personal tax return using **Form T776 (Statement of Real Estate Rentals)**. **What you report:** - Gross rental income (converted to CAD) - Mortgage interest (if any) - Property tax (Ohio's typical rate: 1.59% of assessed value) - Insurance, utilities, maintenance, and repairs - Advertising and management fees - Condo fees (if applicable) - Capital Cost Allowance (CCA)—depreciation claimed on Canadian tax **Form requirements:** - Attach Form T776 to your personal income tax return (Form T1 General) - Report in Canadian dollars using the Bank of Canada annual average exchange rate for 2025: **1 USD = 1.36 CAD** - Use the same exchange rate for both income and expenses ### Form T1135: Foreign Property Ownership If your Ohio property is worth more than CAN$100,000, you must file **Form T1135 (Foreign Income Verification Statement)**. **Reporting requirement:** - Due date: same as your personal tax return (typically June 15 for self-employed; April 30 for salaried individuals) - Report the fair market value of the property in CAD - Failure to file results in a $2,500 penalty per year of non-compliance ### Foreign Tax Credit (Form T2209) You can claim a foreign tax credit for US federal and Ohio state income taxes paid. Use **Form T2209 (Federal Foreign Tax Credit)** to calculate this credit on your Canadian return. **How it works:** - The credit reduces your Canadian tax dollar-for-dollar (up to a limit) - The limit is the Canadian tax on your US-source income - If you overpay US tax, you cannot carry the excess forward to other years under Canadian rules **Example:** If you owe CAN$5,000 in Canadian tax on the US rental income, and you paid CAN$6,000 in combined US federal and Ohio state tax, your credit is limited to CAN$5,000. The extra CAN$1,000 is not refundable or carried forward. ## IRS Obligations for Non-Resident Aliens As a Canadian resident, you are classified as a "non-resident alien" by the IRS. This classification changes your filing and withholding obligations significantly. ### Obtain an Individual Taxpayer Identification Number (ITIN) Before filing with the IRS, you must obtain an **ITIN (Individual Taxpayer Identification Number)**. Unlike a US Social Security Number (SSN), an ITIN is issued by the IRS to non-US citizens who have US tax obligations. **How to obtain:** - Complete **Form W-7 (Application for IRS Individual Taxpayer Identification Number)** - Attach your completed US tax return (Form 1040-NR) to the W-7 - Include a photocopy of your Canadian passport - Mail to the IRS address indicated on Form W-7 instructions (varies by country) - Processing time: 4–6 weeks (by mail from Canada) - There is no fee for an ITIN ### File Form 1040-NR: US Non-Resident Tax Return You must file **Form 1040-NR (U.S. Non-Resident Alien Income Tax Return)** with the IRS. **Filing deadline:** June 15, 2025 (non-residents get an automatic 2-month extension beyond the April 15 deadline) **What to report:** - Schedule E (Supplemental Income or Loss): US rental property income and expenses - Depreciation on the building (not land) using the **Modified Accelerated Cost Recovery System (MACRS)** - Residential rental property: 27.5-year straight-line depreciation - Land cannot be depreciated - Mortgage interest, property tax, insurance, repairs, utilities, management fees - Deductible items use the same USD currency as reported to Ohio ### Section 871(d) Election: Avoid Default 30% Withholding By default, US agents (tenants, property managers) must withhold **30% of gross rent** as "effectively connected income" withholding. This is onerous and disadvantageous. To avoid this, file **Form 8288-B (Certificate of Withholding—Section 1445)** or include a **Section 871(d) election** with your Form 1040-NR. **What the election does:** - Converts your rental income from "fixed or determinable annual or periodical income" (30% withheld) to "effectively connected income" (only standard US federal + state income tax rates apply—approximately 25–35% combined) - Must be filed on a timely basis with your first Form 1040-NR - Once elected, it generally applies to all subsequent years unless revoked **Practical impact:** Without this election, 30% of gross rent is withheld; with it, only actual tax liability (after deductions) is owed. This typically results in lower withholding. ## Ohio State Tax Obligations ### Ohio Non-Resident Income Tax Return (Form IT 1040-NR) Ohio imposes a state income tax of **3.99%** on non-resident real property income. You must file **Form IT 1040-NR (Ohio Non-Resident Income Tax Return)**. **Filing deadline:** April 15, 2025 (same as federal, unless you file for federal extension, in which case it extends to June 15) **What Ohio taxes:** - Net rental income (gross rent minus actual deductions) - Ohio does not conform fully to federal depreciation rules; verify with Ohio Department of Taxation if you claim Section 179 or bonus depreciation **Tax due:** Ohio calculates tax at 3.99% on taxable income. You may have already paid withholding; Form IT 1040-NR will show credits for withholding paid. ### No NR6 Form Required (CRA Withholding Waiver) Canadian residents do **not** file Form NR6 with the CRA to avoid Part XIII withholding. NR6 applies only if a Canadian payer is remitting rent. Because Ohio property is typically rented to US tenants or US property managers handle collections, CRA withholding is not triggered. However, ensure your US property manager or tenant understands they are remitting US withholding, not Canadian. ## Selling Your Ohio Property: FIRPTA Considerations If you sell your Ohio rental property, the IRS requires compliance with the **Foreign Investment in Real Property Tax Act (FIRPTA)**. **Key rules:** - The buyer (or closing agent) must withhold **15% of the gross sale price** as FIRPTA withholding - This withholding is credited against your final US tax liability when you file Form 1040-NR for the year of sale - You report the capital gain on Schedule D (Capital Gains and Losses) of Form 1040-NR - The Canadian capital gains inclusion rate (50%) applies on your Canadian return **Example:** If you sell for USD $200,000, the buyer withholds USD $30,000 (15%). When you file Form 1040-NR, you report the capital gain and the withholding is credited. ## Key Deadlines: CRA and IRS | Obligation | Form | Deadline | Penalty for Late Filing | |---|