On Posted on by Dellendo Farquharson to Accounting and Tax, Non-Resident Taxes, Personal Taxes, Real Estate Tax, Tax Planning & Management, U.S. & International Taxes

The Snowbird Tax Guide: US Real Estate & Rental Income

The Essential 2025 Guide for Canadians Owning Property in Arizona, Florida & Beyond

BOMCAS Canada — Leading Cross-Border Tax & Accounting for Canadians

For Canadians buying or owning property in the United States—especially in snowbird hotspots like Arizona and Florida—navigating US and Canadian tax rules is critical to protecting your investment and maximizing your returns. US tax law requires careful compliance, especially when it comes to reporting rental income, property sales, and residency issues. BOMCAS Canada is your trusted partner in ensuring full compliance, avoiding costly mistakes, and optimizing your cross-border tax position.

1. US Tax Residency and the Substantial Presence Test

Many snowbirds believe simply staying in the US fewer than 182 days each year avoids residency issues. In reality, the IRS uses the Substantial Presence Test (SPT). This test counts all the days you spend in the US each year—plus a portion of days from the prior two years. If your total meets or exceeds 183 days (under the SPT’s multi-year formula), you could be deemed a US tax resident and taxed on worldwide income.

Mitigation:
If you qualify under the SPT but your ties to Canada are stronger, filing IRS Form 8840 (Closer Connection Exception) usually preserves your Canadian residency for tax purposes. Missing this filing or making mistakes can result in massive, avoidable US tax bills. BOMCAS Canada’s cross-border specialists ensure you maintain the optimal tax residency status.

2. US Rental Income Taxation: The Two-Method Decision

As a Canadian renting out US property, you face two options for how the IRS taxes your rental income:

Default Method:

  • 30% US tax withheld on gross (total) rent by your tenant/property manager
  • No deductions or expense claims allowed
  • No ongoing US tax return required

Recommended Net Income Election:

  • Elect to be taxed on “net rental income,” deducting mortgage interest, property taxes, insurance, repairs, management fees, depreciation, and more
  • File Form W-8ECI with the agent and Form 1040-NR with the IRS each year
  • Pay lower, graduated US tax rates (often reduces tax by 75%+ compared to gross method)
  • Potential for large annual tax savings

Example:
Gross rent: $24,000; Normal deductible expenses: $14,000; Taxable net: $10,000

  • Under 30% gross: You pay $7,200 US tax—no deductions allowed
  • Under net income method: You might pay $1,500 US tax (estimated)
    Tax savings: $5,700/year

BOMCAS Canada handles the entire process—filing elections, maximizing deductions, and preparing all returns.

3. State & Local Rental Taxes (Arizona, Florida & More)

  • Florida: No state income tax on rental income
  • Arizona: As of 2025, the residential rental transaction privilege tax (TPT) is eliminated, simplifying compliance for property owners
  • Other states: Rules vary; proper planning with BOMCAS Canada avoids state-level surprises

4. US Property Sales: FIRPTA Withholding and Tax Refunds

On selling US real estate, the Foreign Investment in Real Property Tax Act (FIRPTA) requires the closing agent to withhold 10–15% of the gross sale price—not the gain—and send it to the IRS.

  • If you sell below $300,000 and the buyer uses as a residence, withholding can be reduced or waived
  • Over-withholding is common, but you can apply for reduced withholding before closing via Form 8288-B
  • Even if excess is withheld, BOMCAS Canada ensures prompt tax return filing for the largest possible refund of excess US tax

5. Canadian Tax Reporting for US Property Owners

  • All US rental income and capital gains must be reported on your Canadian tax return. Use Form T776 to claim all expenses.
  • If you pay tax to the US, you may claim a foreign tax credit in Canada, eliminating double-taxation in most cases.
  • Form T1135 is required for all Canadian residents owning foreign property (including US real estate) with a total cost above CAD $100,000.

BOMCAS Canada optimizes your Canadian and US compliance so you only pay what is legally required in each country.

6. Capital Gains, Depreciation Recapture & Principal Residence Rules

  • US tax law requires depreciation to be claimed each year—on sale, prior depreciation is added back (“recaptured”) and taxed at a special rate, in addition to capital gains tax
  • Canadian rules require only 50% of capital gains to be included in taxable income for most properties, but new thresholds/legislation may apply
  • The principal residence exemption may reduce or eliminate Canadian capital gains tax if you lived in the property and meet specific tests

Planning with BOMCAS Canada ensures both US and Canadian requirements are satisfied and your after-tax proceeds are maximized.

7. Estate Tax Exposure

US estate tax can apply to the value of your US “situs” assets—including real estate—if your worldwide estate exceeds certain high thresholds. The Canada-US tax treaty and proper structuring usually prevent exposure for most Canadians, but untimely or incorrect filings risk punitive taxation on your legacy.

BOMCAS Canada provides full life-cycle and estate planning for snowbirds and their families.

8. Key Forms & Filing Deadlines

FormPurposeDeadline
1040-NRUS non-resident tax return (rental income, sales)June 15/April 15 (if US wages)
W-8ECIElection to have net rental income taxedBefore first rent payment/yearly renewal
8288-BReduce FIRPTA withholding at saleBefore closing date
8840Closer Connection ExceptionJune 15 or with 1040-NR
T1135Foreign property declaration (Canada)April 30
T776Canadian rental property reportingApril 30 with T1 return

Common Pitfalls & How BOMCAS Canada Protects You

  • Failing to file Form 1040-NR or the W-8ECI election: Often results in years of over-taxation or IRS audits
  • Late or omitted Form 8840 filings: Potentially triggers unwanted US residency and global income taxation
  • Missing T1135 or incorrect reporting: Leads to severe CRA penalties
  • Incorrect handling of FIRPTA: Delays or permanently loses tax refunds after property sale
  • Neglecting depreciation recapture: Large surprise tax bills later

With BOMCAS Canada’s cross-border team, every form, election, and credit is handled with precision.

Why BOMCAS Canada Is the #1 Choice for Snowbird Investors

  • Total Cross-Border Tax Integration: US and Canadian filings perfected
  • Full Representation in Audits & Inquiries: We handle US and Canadian authorities on your behalf
  • Strategic Planning: From purchase, through ownership, to sale and estate resolution, we safeguard your wealth
  • Award-Winning Service, Transparent Fees: Flat rates, no surprises, no missed deadlines

Conclusion

Canadians who own US property must take a strategic, proactive approach to cross-border taxes. By choosing BOMCAS Canada, you gain a partner with industry-leading credentials, up-to-date knowledge of all the latest tax changes, and an unwavering commitment to your prosperity. Book a consultation with BOMCAS Canada to ensure peace of mind, optimal tax results, and complete compliance in both the US and Canada.