Ontario Landlord with Wisconsin Rental Property

## US Rental Property Ownership: Ontario Resident Tax Guide for Wisconsin Owning rental property in the United States while residing in Canada creates a unique tax situation. You are required to file tax returns in both jurisdictions, report foreign income to the Canada Revenue Agency (CRA), and comply with US federal and state requirements. This guide walks you through the specific obligations for Ontario residents owning residential rental property in Wisconsin. ### Why This Combination Matters As an Ontario resident, you are a Canadian tax resident who must report worldwide income to the CRA. Any income from US rental property is subject to: - Canadian federal and provincial income tax - US federal income tax (IRS) - Wisconsin state income tax (if you meet non-resident thresholds) - Property tax on the Wisconsin property itself Additionally, tax treaties between Canada and the United States (the Canada-US Tax Treaty) provide relief mechanisms to prevent double taxation, but these require proper filing and election procedures. ## CRA Obligations for Ontario Residents ### Reporting Rental Income You must report all US rental income on your Canadian tax return. Income includes rent received, minus allowable deductions. **Form T776: Statement of Real Estate Rentals** File Form T776 annually with your personal tax return if you own rental property. Report: - Gross rental income (converted to Canadian dollars using the Bank of Canada annual average rate: 1 USD = 1.36 CAD for 2025) - Deductible expenses (mortgage interest, property tax, insurance, repairs, utilities, property management fees, advertising) - Capital cost allowance (CCA) if you elect to claim depreciation **Form T1135: Foreign Investment Income Report** If the cost of your Wisconsin property exceeds CAD 100,000, you must file Form T1135 annually. This form reports: - Description and location of the property - Cost amount in Canadian dollars - Fair market value at year-end in Canadian dollars - Income earned during the year in Canadian dollars Failure to file T1135 when required can result in a $25,000 penalty. ### Foreign Tax Credit Calculation The CRA allows a foreign tax credit for US taxes paid, reducing Canadian tax owing. To claim this credit: 1. Convert all US tax amounts to Canadian dollars using Bank of Canada annual rates 2. Calculate Canadian tax owing on the same income 3. Claim the lesser of: (a) foreign tax paid, or (b) Canadian tax on that income **Important:** You must file both the US return (Form 1040-NR) and the CRA return to claim the credit. The credit is claimed on Schedule 1 (Federal Tax) and, if applicable, Ontario Form ON-BTC (Ontario Tax Credit). ## IRS Obligations for Non-Resident Aliens ### Obtaining an ITIN US citizens and residents have a Social Security Number (SSN). As a Canadian non-resident alien, you need an Individual Taxpayer Identification Number (ITIN) to file US tax returns and own US property. **How to obtain an ITIN:** - File Form W-7 (Application for IRS Individual Taxpayer Identification Number) with your initial US tax return - Provide documentation verifying your non-US residency (valid passport, visa, or residence permit) - The IRS will issue an ITIN, typically beginning with 9-7x-xx-xxxx Without an ITIN, you cannot file a US return or claim deductions. ### Form 1040-NR: Non-Resident Alien Income Tax Return File Form 1040-NR annually if you have US-source rental income. **Key sections:** - **Schedule E (Supplemental Income and Loss):** Report rental income and expenses - **Line-by-line reporting:** List the Wisconsin property address, gross rents received, and itemized deductions - **Standard deduction:** Non-resident aliens generally cannot claim the standard deduction for rental income. Deductions must be itemized. ### The Section 871(d) Election If you file Form 1040-NR without making a special election, the IRS will withhold **30% of gross rents** at source (unless Form W-8IMY is filed by the tenant's agent or property manager). This is extremely inefficient because it withholds tax on gross income, not net income. **Section 871(d) election:** - Allows you to be taxed on **net rental income** (rents minus deductions) instead of gross rents - Reduces withholding to only tax owed on actual profit - Requires filing Form 8288-B (Statement of Tax Liability for Fiduciary Withholding) and submitting it with Form 1040-NR **How it works:** If you earn USD 10,000 in rent and have USD 6,000 in deductible expenses, the Section 871(d) election allows you to be taxed on USD 4,000 net income, rather than USD 10,000 gross income. You should make this election in your first US tax filing. ### Form W-8BEN-E or W-8IMY If your property is managed by a US property manager or rental agent, they may request a **Form W-8BEN-E** (Certificate of Status of Beneficial Owner) or **Form W-8IMY** (Certificate for Foreign Financial Institution) to verify your non-resident alien status and apply treaty withholding rates. Complete and return these forms to reduce withholding to Canadian treaty rates (typically 15% under the Canada-US Tax Treaty, versus the standard 30%). ## Wisconsin State Income Tax Obligations Wisconsin imposes a **non-resident income tax** of approximately **7.65%** on Wisconsin-source income (including rental property income) earned by non-residents of Wisconsin. ### Wisconsin Form 1-NR: Non-Resident Income Tax Return File annually if you are a non-resident of Wisconsin and have Wisconsin-source income exceeding the filing threshold (approximately USD 14,500 for 2025). **Key points:** - Report rental income and Wisconsin-specific deductions (such as Wisconsin property tax and mortgage interest) - Calculate Wisconsin taxable income - Pay Wisconsin state income tax on net income - Include a copy of your federal Form 1040-NR with your filing Wisconsin allows a credit for property taxes paid on real property in Wisconsin. Claim this on the Wisconsin return to reduce state tax owing. ### Filing Requirements and Payment - File Wisconsin Form 1-NR by **April 15** (same as the US federal deadline) - Pay tax owed by the same date - Wisconsin recognizes your Section 871(d) election filed with the IRS; net income reporting also applies to Wisconsin ## Selling the Property: FIRPTA Considerations If you sell the Wisconsin property, the Foreign Investment in Real Property Tax Act (FIRPTA) requires withholding of up to **15% of the sale price**. ### What You Need to Know - The **buyer** (or buyer's agent) must withhold 15% of net proceeds - You can request a withholding certificate (Form 8288-B) from the IRS before closing to reduce the withholding amount based on your actual tax liability - Report the sale on **Schedule D (Capital Gains and Losses)** of Form 1040-NR - Report the same sale on your CRA return, converting proceeds to Canadian dollars ### Timing and CRA Considerations - You have **20 days after closing** to notify the IRS of the sale - File CRA Form T776 for the year of sale, reporting the capital gain - The gain is: Sale price minus adjusted basis (original cost plus improvements, minus CCA claimed) - Canadian tax is owed on 50% of the capital gain (inclusion rate for 2025) ## Deadlines and Filing Timeline | Obligation | Form | Deadline | Jurisdiction | |---|---|---|---| | US federal income tax return | Form 1040-NR | April 15 | IRS | | Section 871(d) election | Form 8288-B (with 1040-NR) | April 15 | IRS | | Wisconsin state income tax | Form 1-NR | April 15 | Wisconsin DOR | | Canadian income tax return | T776 + Schedule 1 | June 15 (payment: June 15) | CRA | | Canadian foreign income report | Form T1135 | June 15 | CRA | | Estimated US tax payments | Form 1040-ES | Quarterly (Jan 15, Apr 15, Jun 15, Sep 15) | IRS | | Canada estimated tax payments | Form T1-EST | Quarterly (same dates as US) | CRA | **Note:** If you request an extension for your US return (Form 4868), the deadline extends to October 15. However, taxes owed are still due by April 15 to avoid penalties and interest. ## Key Takeaways for Ontario