Q: Do I have any U.S. tax exposure if I rent my U.S. vacation home?
A: Canadians are subject to a 30% U.S. withholding tax on the gross rental.
A waiver from withholding is available by providing the withholding agent with a W8-ECI. This waiver obligates the taxpayer to annually file a return.
The return reports your net rental income. Net rental income is gross rentals less expenses less U.S. depreciation on the building and on furniture & fixtures. By doing this, your tax liability is then limited to tax based on graduated tax rates. Some states will require a return as well.
U.S. tax payable is creditable on your Canadian tax return to the extent of any Canadian tax payable on this income.
The return will not be accepted if you do not have an individual taxpayer’s identification number (ITIN). Application (W-7) for the ITIN may be attached to your first tax return. The W-7 requires a properly certified copy of your passport or original if you do not use a CAA.
U.S. forms are available on the IRS website http://www.irs.ustreas.gov/pub