Canadians earning rental income from the United States have two options in regards to US taxation:

1. Rental income is subject to withholding tax of 30% from gross rental revenue. Tenant or real estate agent to withhold tax and remit to IRS. No deductions for expenses are allowed. No income tax return is required to file.
2. Elect to treat rental income as effectively connected with United States Trade or Business. That election will allow claiming deductions related to real estate income. Only net rental income is subject to graduate Federal and State tax. To prevent withholdings a form W-8ECI to be issued to tenant/agent

We find that for the vast majority of our clients electing second option and filing a tax return is advantageous.

Attention Canadians Purchasing Real Estate in the United States

US Department of Commerce requires an initial filing when the investment is first made (Form BE-13 or BE-14),
and an annual filing (Form BE-15) and a special filing every fifth year (Form BE-12).  The penalty for noncompliance is minimum $2,500 and maximum $25,000.