Canadian Tax Implications of Owning Florida Real Estate

Do Canadians pay taxes on Florida property? Yes, in both countries. Canadian residents who own US real estate have tax obligations to the IRS (on US-source income and gains) and to the CRA (on worldwide income). The Canada-US Tax Treaty prevents double taxation in most situations, but you need to file correctly in both jurisdictions to claim the benefits.

This guide covers the tax implications of owning Florida real estate as a Canadian resident. It is meant as an overview, not tax advice. Tax situations vary by individual, and laws change. Work with a cross-border tax professional for your specific circumstances.

For the complete picture on purchasing Florida property, see our guide to buying Miami real estate as a Canadian, which covers financing, legal requirements, and the purchase process.

Overview of Cross-Border Taxation for Canadians

When you own Florida real estate as a Canadian, you are subject to two tax systems:

United States:

• Taxes rental income from US property
• Taxes capital gains when you sell US property
• May impose estate tax on US assets at death
• Requires tax filings even for non-residents with US income

Canada:

• Taxes worldwide income of Canadian residents
• Requires reporting of foreign property holdings
• Provides foreign tax credits to prevent double taxation
• Taxes capital gains on worldwide assets

The Canada-US Tax Treaty coordinates these two systems and provides mechanisms to avoid being taxed twice on the same income. But the treaty does not eliminate your obligations in either country. It just ensures you get credit for taxes paid.

The key principle: You will generally pay the higher of the two countries' tax rates on any given income, not both rates combined. If US tax is higher, you pay US tax and claim a credit in Canada. If Canadian tax is higher, you pay US tax first and top up the difference to Canada.

US Tax Obligations for Canadian Property Owners

As a Canadian owning Florida real estate, your US tax obligations depend on how you use the property.

Personal Use Only (No Rental Income)

If you use your Florida property purely for personal purposes and do not rent it out, your US tax obligations are minimal:

• Property taxes: Due annually to the county (typically 1.5% to 2% of assessed value)
• No income tax filing required if you have no US-source income
• FIRPTA withholding applies when you sell (see section below)

Rental Income

If you rent out your Florida property, you must file a US tax return and report that income. You have two options:

Option 1: 30% Gross Withholding

Your property manager or tenant withholds 30% of gross rental income and remits it to the IRS. No deductions are allowed. This is simple but usually results in paying more tax than necessary.

Option 2: Net Rental Income Election (Recommended)

By filing Form W-8ECI with your property manager and making a "net election" under IRC Section 871(d), you can be taxed on net rental income (gross rent minus expenses) at graduated rates.

Deductible expenses include:

• Mortgage interest
• Property taxes
• Insurance
• HOA fees
• Property management fees
• Repairs and maintenance
• Utilities (if you pay them)
• Depreciation (significant tax benefit)

The net election almost always results in lower tax because your deductions often offset a large portion of rental income.

Required filings for rental income:

Capital Gains When Selling

When you sell your Florida property, you owe US capital gains tax on any profit. The rate depends on how long you owned the property:

• Short-term (held less than 1 year): Taxed as ordinary income (up to 37%)
• Long-term (held more than 1 year): 15% for most taxpayers, 20% for high earners

You must file Form 1040-NR in the year of sale to report the gain and calculate your tax liability.

Canadian Tax Reporting Requirements

Canadian residents must report worldwide income to the CRA, including income and gains from US real estate.

Rental Income Reporting

US rental income must be reported on your Canadian tax return (Line 12600, Gross foreign rental income). You can deduct the same expenses allowed in the US, though depreciation rules differ between countries.

To avoid double taxation, claim a foreign tax credit (Form T2209) for US taxes paid on the rental income.

Capital Gains Reporting

When you sell your Florida property, report the capital gain on Schedule 3 of your Canadian return. Canada taxes 50% of capital gains at your marginal rate.

The gain must be calculated in Canadian dollars using exchange rates at the time of purchase and sale. Currency fluctuations can affect your Canadian gain even if the US dollar gain is modest.

Claim a foreign tax credit for US capital gains tax paid to offset your Canadian liability.

Form T1135: Foreign Income Verification Statement

If your Florida property cost more than $100,000 CAD, you must file Form T1135 with your Canadian tax return annually. This is an information return that reports foreign property holdings.

T1135 requirements:

Penalties for not filing: Up to $2,500 per year, plus potential gross negligence penalties. The CRA takes foreign reporting seriously.

The Canada-US Tax Treaty and Real Estate

The Canada-US Tax Treaty is a bilateral agreement that coordinates taxation between the two countries and prevents double taxation. For real estate, the key provisions are:

Article VI: Income from Real Property

Each country can tax income from real property located within its borders. This means the US can tax your Florida rental income and Canada can tax it too, but foreign tax credits prevent double taxation.

Article XIII: Gains from Real Property

Capital gains from selling real property are taxable in the country where the property is located. The US can tax your gain on Florida property, and Canada provides a foreign tax credit for US tax paid.

Article XXIX B: Estate Tax

This article provides relief from US estate tax for Canadian residents. It increases the US estate tax exemption proportionally based on the ratio of US assets to worldwide assets. More on this below.

What the treaty does not do:

The treaty does not exempt you from filing requirements in either country. You still need to file returns, report income, and claim treaty benefits properly. The treaty just ensures you do not pay full tax to both countries on the same income.

FIRPTA Withholding When Selling

FIRPTA (Foreign Investment in Real Property Tax Act) requires withholding when a foreign person sells US real estate. This affects all Canadians selling Florida property.

How FIRPTA works:

When you sell your Florida property, the buyer (through the title company) must withhold a percentage of the gross sale price and remit it to the IRS. This is not a tax itself. It is a prepayment toward your eventual tax liability.

FIRPTA withholding rates:

Example: You sell your Miami condo for $600,000. The buyer plans to rent it out. The title company withholds $90,000 (15%) and sends it to the IRS. When you file your 1040-NR, you calculate your actual capital gains tax. If your tax is $40,000, you receive a $50,000 refund.

Reducing FIRPTA withholding:

If your actual tax liability will be significantly less than the standard withholding, you can apply for a Withholding Certificate using Form 8288-B. The IRS may authorize reduced withholding based on your projected tax.

Important: Apply for the Withholding Certificate before closing. The process can take 90 days or more. Plan ahead if you want reduced withholding.

FIRPTA filing requirements:

Rental Income Taxation in Both Countries

Here is how rental income flows through both tax systems:

Step 1: Calculate net rental income

Start with gross rent received. Subtract allowable expenses:

• Property management fees (typically 8% to 12% of rent)
• HOA or condo fees
• Property taxes
• Insurance
• Mortgage interest
• Repairs and maintenance
• Utilities you pay
• Advertising for tenants
• Travel to the property for management purposes
• Depreciation (27.5 years for residential property in the US)

Step 2: File US tax return (Form 1040-NR)

Report net rental income on Schedule E. Calculate US tax at graduated rates. The first portion of income is taxed at lower rates (10%, 12%), increasing as income rises.

Step 3: File Canadian tax return

Report gross foreign rental income. Claim similar deductions (though depreciation rules differ). Calculate Canadian tax.

Step 4: Claim foreign tax credit in Canada

Use Form T2209 to claim credit for US taxes paid. This reduces your Canadian tax dollar for dollar, up to the Canadian tax on that income.

Net result: You pay the higher of the US or Canadian rate, not both combined.

Example:

• Net rental income: $10,000 USD ($13,500 CAD at 1.35 exchange rate)
• US tax paid: $1,200 USD ($1,620 CAD)
• Canadian tax before credit: $2,700 CAD (assuming 20% marginal rate)
• Foreign tax credit: $1,620 CAD
• Canadian tax after credit: $1,080 CAD
• Total tax paid: $1,200 USD + $1,080 CAD = approximately $2,700 CAD

Foreign Tax Credits: Avoiding Double Taxation

Foreign tax credits are the mechanism that prevents you from paying full tax in both countries on the same income.

How foreign tax credits work:

When you pay tax to the US on Florida rental income or capital gains, you can claim a credit against your Canadian tax on that same income. The credit equals the lesser of:

1. The US tax paid, or
2. The Canadian tax otherwise payable on that income

Forms for claiming foreign tax credits:

Limitations:

Foreign tax credits are limited to the Canadian tax on the foreign income. If US tax exceeds Canadian tax, you cannot claim the excess as a credit (though you may be able to carry it forward or back in some situations).

Currency conversion:

Convert US taxes paid to Canadian dollars using the exchange rate on the date the tax was paid. For estimated taxes paid quarterly, convert each payment separately.

Timing mismatches:

Sometimes you pay US tax in one year but report the income in Canada in a different year (due to filing deadlines or cash vs. accrual differences). Work with a cross-border accountant to handle these timing issues correctly.

Estate and Inheritance Considerations

US estate tax is where cross-border property ownership gets complicated. This is an area where professional planning is strongly recommended.

US estate tax basics:

US citizens and residents get an estate tax exemption of approximately $13.6 million (2024). Estates below this threshold pay no federal estate tax.

Non-residents (including Canadians) get an exemption of only $60,000 USD on US-situated assets. Florida real estate is a US-situated asset.

Without treaty relief:

A Canadian with a $500,000 Florida condo and no other US assets would have $440,000 of taxable estate ($500,000 minus $60,000 exemption). The estate tax on this amount could be over $100,000.

With treaty relief (Article XXIX B):

The Canada-US Tax Treaty provides a proportional increase to the exemption. The formula:

Unified Credit = US Citizen Credit × (US Assets ÷ Worldwide Assets)

Example:

• Florida property value: $500,000 USD
• Worldwide estate: $2,000,000 USD
• US assets are 25% of worldwide estate
• Treaty exemption: 25% × $13.6 million = $3.4 million

In this example, the treaty exemption exceeds the US property value, so no US estate tax is due.

When estate tax becomes a problem:

Canadians with significant US real estate holdings relative to their total worldwide estate may still face US estate tax even with treaty relief. This is more likely when:

• US property is a large percentage of total assets
• Worldwide estate is modest relative to US holdings
• Multiple US properties are owned

Planning strategies:

Various structures can reduce or eliminate US estate tax exposure:

• Life insurance to cover potential estate tax
• Holding property through Canadian corporations (has income tax implications)
• Cross-border trust structures
• Joint ownership arrangements

These strategies have trade-offs. Some reduce estate tax but increase income tax. Others add complexity and cost. Work with a cross-border estate planning attorney to evaluate options for your situation.

US Tax ID Numbers (ITIN) for Canadians

An ITIN (Individual Taxpayer Identification Number) is a tax processing number issued by the IRS to individuals who need a US taxpayer identification number but are not eligible for a Social Security Number.

Do Canadians need an ITIN for Florida property?

You need an ITIN if you have US tax filing obligations, which includes:

• Reporting rental income
• Reporting the sale of US real estate
• Filing to claim a refund of FIRPTA withholding
• Claiming treaty benefits

If you only use the property personally and never rent it, you may not need an ITIN until you sell.

How to apply for an ITIN:

File Form W-7 with the IRS. You can apply:

1. When filing your first US tax return (attach W-7 to your 1040-NR)
2. Through a Certified Acceptance Agent (CAA) who can verify your identity documents
3. In person at an IRS Taxpayer Assistance Center

Required documentation:

• Completed Form W-7
• Valid passport (original or certified copy)
• Tax return requiring the ITIN (or other qualifying reason)

Processing time: 7 to 11 weeks typically, longer during busy periods.

ITIN expiration: ITINs not used on a tax return for three consecutive years expire. ITINs issued before 2013 have been expiring on a rolling basis and need renewal.

State of Florida Tax Benefits

Florida offers several tax advantages that attract Canadian buyers:

No state income tax

Florida is one of nine US states with no state income tax. Your Florida rental income is taxed only at the federal level, not by the state. This can save several percentage points compared to states with income taxes.

No state estate tax

Florida does not impose a state-level estate tax. Your estate tax exposure is limited to federal estate tax (subject to treaty relief).

Property tax considerations

Florida property taxes typically range from 1.5% to 2% of assessed value. As a non-resident, you do not qualify for Florida's homestead exemption (which caps assessment increases and provides a $50,000 exemption for primary residents).

Property taxes are deductible against rental income on your US tax return.

Save Our Homes assessment cap (does not apply to non-residents)

Florida's Save Our Homes provision limits annual property assessment increases to 3% for homesteaded properties. Since Canadians cannot claim homestead status, your property can be reassessed to market value annually.

Record Keeping Requirements

Proper record keeping is critical for cross-border property ownership. You need documentation for both US and Canadian tax purposes.

Records to keep:

Why capital improvements matter:

When you sell, your taxable gain is the sale price minus your cost basis. Your basis includes not just the purchase price but also capital improvements (additions, renovations, major upgrades). Good records of improvements reduce your eventual tax bill.

Currency records:

For Canadian tax purposes, you need to track exchange rates at time of purchase, major improvements, and sale. The gain calculated in Canadian dollars can differ significantly from the US dollar gain.

When to Hire a Cross-Border Tax Specialist

Cross-border taxation is complex. While this guide provides an overview, it cannot address every situation. Here is when professional help is particularly valuable:

Before purchasing:

• Ownership structure decisions (personal name vs. corporation vs. trust)
• Estate planning for US property
• Understanding your specific tax exposure

Annually:

• Preparing US and Canadian tax returns with foreign property
• Calculating depreciation and expense allocations
• Claiming foreign tax credits correctly
• Filing Form T1135

When selling:

• FIRPTA planning and withholding certificate applications
• Capital gains calculations in both currencies
• Coordinating US and Canadian reporting

What type of professional?

Look for accountants or tax lawyers with specific cross-border (Canada-US) experience. General accountants in either country may not understand the interaction between the two tax systems.

Professional associations like the Canadian Institute of Chartered Accountants or the American Institute of CPAs can help you find qualified professionals with cross-border expertise.

Cost of getting it wrong:

Mistakes in cross-border tax compliance can be expensive:

• Penalties for late or incorrect filings
• Interest on unpaid taxes
• Double taxation if credits are not claimed properly
• Estate tax exposure from poor planning

The cost of professional advice is usually far less than the cost of fixing errors.

Frequently Asked Questions

Do Canadians pay property tax in Florida?

Yes. Florida property taxes apply to all property owners regardless of citizenship or residency. Expect to pay approximately 1.5% to 2% of assessed value annually.

What is FIRPTA and how much is withheld?

FIRPTA requires withholding when a foreign person sells US real estate. The standard withholding is 15% of the gross sale price. This is a prepayment toward your capital gains tax, not an additional tax. You file a return and receive a refund if your actual tax is less than the amount withheld.

Do I need to file a US tax return for my Florida rental property?

Yes. If you receive rental income from US property, you must file Form 1040-NR annually, even if you have a loss after expenses.

Can I avoid double taxation on rental income?

Yes. The Canada-US Tax Treaty and foreign tax credit provisions prevent double taxation. You pay tax in the US first, then claim a credit against your Canadian tax for the US tax paid.

What is Form T1135 and do I need to file it?

Form T1135 is a Canadian information return for foreign property holdings. If your Florida property cost more than $100,000 CAD, you must file T1135 annually with your Canadian tax return. Penalties for non-filing can reach $2,500 per year.

How is the capital gain calculated for Canadian tax purposes?

Your gain must be calculated in Canadian dollars. Convert your purchase price to CAD at the exchange rate when you bought. Convert your sale price to CAD at the exchange rate when you sold. The difference (minus selling costs and improvements) is your capital gain. Currency fluctuations can significantly affect your Canadian gain.

Will my estate owe US estate tax on my Florida property?

It depends on the value of your US property relative to your worldwide estate. The Canada-US Tax Treaty provides relief that often eliminates estate tax for Canadians, but not always. Estate planning is recommended for significant US property holdings.

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