The following information is intended to assist our clients to understand the documents and information that are required by Aylett Grant Tax LLP to prepare your U.S. income tax returns, such as: 1040NR and other information filings required by the IRS. The sooner and more complete we receive this information, the more efficiently our cross border tax specialist can process your US returns and the more you will save.
U.S. income tax on rental property
A Canadian resident who owns a residential property in the United States that has been rented to another party for any part of the tax year must elect one of the following two options:
- Pay a tax equal to 30% of the gross rent or
- Pay tax on the net rental profits
If you elect the first option, there are two avenues for you. First is that your rental agent may withhold the 30% tax and forward it directly to the IRS and you are not required to file a US tax return. A tax slip should be issued by the rental agent to you reporting the gross income and taxes withheld for the tax year.
The second is if you do not have a rental agent, you must forward the tax yourself within 20 days of receiving the rent or 20 days after the end of each quarter as determined by the IRS. You are required to file form 1042 by March 15 of the year following the tax year. Failure to forward the required monthly or quarterly tax installments to the IRS or failure to file form 1042 can result in penalties. The maximum penalty is 25% of the unpaid tax. For a more detailed discussion of Form 1042 and the associated penalties, please see our article titled “Canadians Buying a House in the US” on our website.
If you are a Canadian resident that owns a US rental property and have elected to pay tax on the net rental profit you must file a United States income tax return.
There are other additional forms that may need to be filed in order to make this election, which we will gladly assist you with.
Additionally, you must file a US income tax return for the tax year in which you sell any US residential property. There are also forms that should be prepared just prior to selling the property.
Penalties applied for failure to timely file US income tax returns
Taxpayers subject to US taxes should be aware that there are substantial penalties for late filing or failing to file US tax returns. In fact the IRS can levy a penalty for an inadvertent mistake made by a taxpayer in preparing his income tax return or simply failing to attach a required schedule or form. We recommend that you have a tax expert review your US tax return before you submit it to the IRS. The Aylett Grant cross border tax experts will review your tax returns and assist you to accurately prepare and file all required returns and supporting documents to ensure that you enjoy the most pleasant and worry free experience possible. Our expert tax accountants will handle all your tax requirements accurately and timely at reasonable cost.
Information required to file a US income tax return
Aylett Grant international tax specialists will require the following information in order to prepare and file your US income tax returns:
- Your Name, Birth Date, and Address.
- Your US Individual Tax Identification Number (ITIN) (if you do not yet have one the Aylett Grant tax experts will assist you to obtain your ITIN.
- Address of any rental property, date of purchase, and cost.
- The number of days that you rented the property.
- The number of days that the property was available to be rented.
- The number of days that you or your family vacationed in the rental property.
- The name and address of your rental agent.
- The name(s) of the person renting the property and a copy of any lease or rental agreement.
- Statement of rental revenue and expenses. If your rental agent has not prepared one please bring copies of all expenses that you have paid on behalf of the rental property.
- The Number of days that you spent in the US for each of the past three years. A day is defined as any period of time that you were physically present in the US during a 24-hour period. There are certain exceptions that the tax specialists at Aylett Grant can assist you with.
- A copy of your last year’s US tax return if applicable.
- A copy of your last year’s and/or current Canadian tax return.
- All other income from any source in the United States for the current tax year.
- All correspondence with the IRS.
- All correspondence with any other United States government agency.
The more complete the information provided, the more efficiently our cross border tax specialists can prepare your US federal and state tax returns which can lead to cost savings in the long run. Our goal at Aylett Grant is to provide our clients with accurate and timely services in the most efficient and economical manner possible.
AG TAX LLP Can Help
If you have any other tax-related queries, and/or need assistance with tax planning/filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.
Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to U.S., Canada and other international tax laws.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.
