With COVID 19 affecting us this year I decided to take a look at the something Canadians may be considering, renting out their property in Florida.
Nothing new here on this matter. Many non-US citizens rent out their properties in Florida for part or even all of the year but most do so “under the radar” of the tax man. Canadians citizens most likely do not have the property homesteaded as most will be on a Visitor Visa but if they do then renting out the property may place this jeopardy. If they have a mortgage on the property then renting it out may be a violation of the mortgage covenants. If they entered the US on a Visitor Visa (they just flew here on a plane without a specific visa being issued) then renting property here may be considered a violation of the automatic visa entry into the US. One must also check to see if renting the property is allowed by the Home Owners or Condominium Owners Association. It also may invalidate your property insurance as the property is no longer owner occupied. Note that if the property is owned by a Canadian entity such as a trust or LLC then Florida requires these to register as foreign entities doing business in Florida. Local municipalities may require a business tax receipt which often requires inspections for things like zoning, fire and housing codes. But the big thing that 90% of people do NOT do is pay income tax on the rental income to the US Government and maybe or maybe not they declare it to the Canadian tax collector.
If you receive income from rental of property owned in the US then you must pay US income tax on this. Similar to the FIRPTA withholding on a sale, the US government does not want to chase someone back in Canada or wherever for their taxes so they THE PAYER of the money to withhold a portion of the rent pending a tax return being filed by the owner. Thus, 30% of the rent paid to the Canadian citizen is supposed to be withheld in the US. If the rental income is connected to a business, then you can deduct expenses to run that business when you file the tax return and be taxed on the net income. What you will need to do is:
- First, read up on what the US IRS has to say about it and particular.
- Obtain a US Individual Tax ID Number or ITIN from the IRS W-7.
- Read about and complete form W-8ECI which has to be submitted by the tenant or the withholding agent to the IRS.
- file a U.S. tax return as a non-resident (form 1040NR)
- Declare the income in Canada where you may be able to deduct the taxes paid in the US.
If you have been renting out your property without doing this then you have been breaking the law. Note that if you are simply selling your property then the income requirements above are not applicable BUT the FIRPTA rules are.
