Investing in US Rental Property as a Canadian: Taxes, Financing and Exchange Rate

A detached house in Toronto or Vancouver can run well over C$1 million. A rental house in Indianapolis or Cleveland can cost under US$150,000. That gap is why a lot of Canadians end up looking south, and it's also why most of them hit the same wall around week two: the house math is easy and the taxes, the lender and the wire transfers around it aren't.

Cash-on-cash return and cap rate work the same on both sides of the border, so the investing math carries over untouched. The rest is new: who taxes you, who will lend to you, what the exchange rate does to your returns, and how you close on a house you may never walk through.

This is general information, not tax or legal advice. The rules depend on your income and the US state you buy in, and they change. Treat it as a list of things to ask a cross-border accountant, one who files in both countries.

The exchange rate is part of the deal

Say the rate is 1.38 Canadian dollars to one US dollar. A US$150,000 house costs about C$207,000. A 20% down payment is US$30,000, or C$41,400, before closing costs.

Your tenant pays rent in US dollars and your mortgage is in US dollars, so most of the deal runs in USD and the rate only matters when money crosses the border. It matters in two places.

Moving money. Big banks usually add 2% to 3% on top of the mid-market rate when you send a wire. On a US$30,000 down payment that's US$600 to US$900 gone before you've bought anything. Currency brokers and transfer services usually charge a fraction of that. Some investors use Norbert's Gambit, which means buying a dual-listed ETF in CAD and selling it in USD, to convert large amounts for a few dollars in commission. It takes a few days and a brokerage account that supports it, so ask your broker how it works before you try it with real money.

Your net worth in CAD. If the Canadian dollar strengthens, your US equity is worth fewer Canadian dollars when you eventually convert it. If it weakens, you gain. The US mortgage is also in USD, so the debt moves with the house, which softens the swing but doesn't remove it. Nobody predicts the rate well, so most investors size the risk and don't try to time the rate.

Open a US-dollar account early. Collect rent in it and pay the property manager, insurance and property tax out of it. You only convert what you want to bring home, and you pick the moment.

What the IRS wants

As a non-resident, you owe US tax on income from US real estate. How it gets collected depends on one choice you make.

Gross or net. By default, rent paid to a foreign owner is subject to 30% withholding on the gross amount, with no deductions for the mortgage interest, repairs, property tax or depreciation. On a house that clears 8% of its price in net income, a 30% tax on gross rent can wipe out the profit. The fix is to elect to treat the rent as income from a US business, which lets you deduct expenses and pay tax on the net at regular graduated rates. You give your property manager or tenant a W-8ECI form so they stop withholding, and you file a US return (Form 1040-NR) each year. File the first one on time. If it's more than 16 months late, you can lose the deductions.

An ITIN. To file that return you need a US taxpayer number. You don't have a Social Security Number, so you apply for an Individual Taxpayer Identification Number with Form W-7. The IRS says seven weeks, or nine to eleven if you apply in peak season (mid-January to April 30) or from outside the US, so start before you close. A W-8ECI needs a US taxpayer ID to be valid, which means you usually can't hand one to your property manager until the ITIN comes through. Until then they may withhold 30% of gross rent, and you get the excess back on your first Form 1040-NR. Ask your accountant how to sequence the ITIN, the election and the first return. There's more on this in the ITIN glossary entry.

State returns. Most states with an income tax want a non-resident return on rent earned there. Florida, Texas and Tennessee don't tax wages or rent at the state level, so you'd skip that return. Ohio, Indiana, Alabama and others do tax it. The state guide for Canadian investors goes through the differences.

Depreciation. On a US return you deduct depreciation on the building over 27.5 years. On a US$150,000 house where US$120,000 is the building and the rest is land, that's about US$4,360 a year off your taxable rent. It also gets taxed when you sell, at up to 25% on the amount you deducted, so it moves tax from now to later and doesn't erase it. Your accountant will have an opinion on whether to claim the matching deduction in Canada, where it's optional and can create its own recapture.

The Canada side

Canada taxes residents on worldwide income, so the rent shows up on your Canadian return as well. You report it on form T776 and convert the US dollars to Canadian at the rate the CRA publishes. Then you claim a foreign tax credit (form T2209) for the US tax you already paid.

The Canada-US tax treaty is what keeps the same income from being taxed in full twice. Some tax still gets paid. US rates on a modest net rental profit are often lower than your Canadian marginal rate, so you generally end up paying the US tax first and the difference to Canada. In practice the rent gets taxed at about your Canadian rate. Don't count on US tax savings in your first-year numbers.

One more filing catches people out. If the total cost of your foreign property is more than C$100,000 at any point in the year, you file form T1135 with your Canadian return. A rental house in the US counts. Missing it gets penalties that add up by the day.

Selling: FIRPTA

When a foreign person sells US real estate, the buyer is required to withhold part of the sale price and send it to the IRS. That's the Foreign Investment in Real Property Tax Act, or FIRPTA. The usual rate is 15% of the gross sales price, whatever your gain turns out to be.

Example: you sell for US$200,000 and the buyer withholds US$30,000 at closing. If your actual gain is small, the tax you owe could be much less than that. You get the rest back by filing a US return, but it can take months, and the money sits with the IRS while you wait. You can apply for a withholding certificate on Form 8288-B to lower the amount held. Submit it before closing and tell the title company. The IRS often takes months to answer, so the buyer may hold the money in the meantime. Read the FIRPTA entry and plan for it when you buy, because it affects what an exit looks like.

US estate tax

A non-resident who dies owning US property can face US estate tax on it. Without the treaty, a non-resident only gets a US$60,000 exemption on US assets. The Canada-US treaty gives Canadians a share of the full US exemption (US$15 million for 2026), sized by how much of the worldwide estate sits in the US. You have to file Form 706-NA to claim it, and a US filing is required once US assets pass US$60,000. For most investors with a few rentals, that probably means no tax is due and a filing is. Ask your accountant whether your total estate puts you anywhere near the line.

Financing as a Canadian

Most US banks won't lend to a Canadian with no US credit history. The loans that exist are foreign national loans, usually from specialty lenders, and many of them are DSCR loans, which qualify the property on its rent. Expect 25% to 35% down and a rate higher than a US resident would see. Some lenders also ask for six to twelve months of payments held in reserve.

Some Canadians skip the loan problem by borrowing against a Canadian home and paying cash. Whether interest on that borrowing is deductible depends on how the money is used, so ask before you rely on it.

The full breakdown is in Can Canadians get a US mortgage or DSCR loan?.

Who owns it

Buying personally, through a US LLC or through a Canadian corporation each changes your tax bill and your liability. They don't all work well for a Canadian individual, and the LLC in particular has a tax mismatch between the two countries that catches people off guard. We wrote that up separately: buying US rental property personally or through a corporation.

Closing from Canada

Many states allow remote online notarization, but not all, and your lender and title company have to accept it, so ask them early. If they won't, a power of attorney can let someone local sign for you. The lender and title company have to approve that too, and your attorney should set it up weeks ahead. Either way, confirm wire instructions by phone with a number you looked up yourself. Wire fraud targets real estate closings and cross-border buyers are an easy mark because they're remote.

After closing, the same rules apply as for any out-of-state purchase, with a border on top. You'll want a property manager you trust and a US contact who can sign something if you can't.

Mistakes that cost money

These come up often enough that they're worth listing by themselves.

• Not planning the ITIN early, so the property manager withholds 30% of every rent payment for months and you're chasing a refund after the first return.
• Forgetting the T1135 because the property cost crossed C$100,000 and nobody mentioned it.
• Wiring the down payment through a retail bank at its posted rate and losing a few hundred dollars each way.
• Buying through a US LLC because a US agent suggested it, without asking whether the CRA will give you a credit for the tax the LLC's income generates.
• Not knowing about FIRPTA until a buyer's title company asks for a form with a week to go.

An ITIN delay alone can mean months of 30% withholding on your rent.

Before you call the accountant

A first meeting goes better with the specifics in hand. Bring the purchase price and the city, how you plan to finance it, whether you'll hold it personally or in some entity, your expected rent, and your Canadian marginal tax bracket. Ask how they'd file the first-year US return, whether they handle ITIN applications themselves or use a certifying agent, and what they charge for the first year compared with later years. The first year costs more, because that's when the ITIN, the election and the setup all happen. A few thousand dollars a year for cross-border accounting isn't unusual on a first rental, and it's a fixed cost you should put into your cash flow before you buy.

Where to start

Pick a market from the cash flow markets page and run a real listing through the calculator, then add the Canadian costs: the transfer fees, an accountant, the ITIN and the 15% FIRPTA hold when you sell. If the deal still works, you have a candidate.

Each step has its own guide: the step-by-step buying process, first-year tax, funding and currency exchange and selling. Everything Canadian is also collected on the Canadian investors page.

The free Canadians Investing in US Property Checklist puts the questions above into a list you can bring to your accountant and lender. It covers the same ground as this page plus a few extra items on closing.