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A recent report from the IRS indicates that non-resident alien (NRA) individual property owners may not be fully compliant with U.S. tax laws. The concern is that NRA individuals (we call them “Snowbirds”) are not reporting rental income earned and/or capital gains on the sale of their properties.
Canadian Snowbirds who are renting out their vacation properties may be subject to a 30% withholding tax on the gross rents received. Alternatively, they can elect to treat the income as, “Effectively connected to a U.S. trade or business” and be taxed at graduated rates of tax on a net basis after claiming applicable deductions.
The report that was compiled for the IRS sampled U.S. property owners in Florida, Nevada, Texas, and California and found that 13% of the Snowbird homeowners rented out their property but did not comply with U.S. tax filing requirements.
It is estimated that in 2016, NRA’s purchased more than $43 billion of U.S. real estate, many of them from Canada. Because of the significant number of non-filers the IRS is looking to obtain more information on foreign property owners to enforce US tax compliance.
Canadian Snowbirds who rent out their vacation properties should ensure that they review all of the U.S. filing requirements and, if necessary, engage professional help to assist with meeting these U.S. tax obligations.
The content included in this article on US Tax Compliance for Snowbirds is believed to be accurate as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.