TAX RESOURCES

Breezy

October 6, 2022

Breezy Vacation Rentals

 

Rental Income & Taxes

Tax and Rental Income can be a complicated process, especially when working across borders. We are here to help with this, as our full-service management includes comprehensive accounting services also.

U.S. Income Tax

Canadian snowbirds are tax residents of Canada but they should report their United States rental income to the IRS if they rent their property out for 15 days or more per tax year. Snowbirds should report rental income on IRS Form 1040NR.

Please bare in mind that unless you make a special election by filing IRS Form W-8ECI with your Form 1040NR, the IRS will levy withholding tax on your US rental income. This tax is 30% of the “gross” rental income. But it’s possible to file for the special election, which allows you to only have to pay tax on your “net” rental income.

There is another important federal tax form that you may need to file in the United States, depending on how your property ownership is organized. For instance, If you own the US rental property in your own personal name but don’t have a United States Individual Tax Identification Number (ITN), you must apply for one in order to file Form 1040NR. Applications for Tax Identification Numbers should be done via IRS Form W-7.

Also, bare in mind that some states require you to pay state-level tax on your rental income also! While Florida does not demand personal income tax, they do levy a sales and use tax on vacation rentals that owners are required to collect and provide to the Florida Department of Revenue. In addition to this, some counties in Florida may require you to pay a discretionary sales surtax on the state sales and use tax, as well as a transient rental tax on rental income earned on short-term vacation rentals of six months or less.

Tax rules are complex in Florida, so it’s best to work with a highly qualified and professional service provider to support you, such as Breazy Vacation Rentals.

Canadian Income Tax

Tax income must also be reported in Canada (even if it is from the US) to the Canada Revenue Agency (CRA). You must report all US rental income earned to the CRA, even if you’ve rented your property for less than 15 days in a tax year.

However, you will receive foreign tax credits from the CRA for the federal and state income tax that you pay in the US. These foreign tax credits offset the tax owing in Canada, and if you receive enough foreign tax credits, you may be able to avoid double taxation entirely.

Failing to report your rental income in both Canada and the United States can result in issues, such as fines and interest charges being added to any income tax that you should have previously paid. This should be avoided at all costs. You could additionally be penalized with other tax issues, for instance being unable to carry forward losses into future tax years.[/vc_column_text]