IRC § 871(d) net election: how a Canadian landlord stops the 30 percent gross withholding

Who this guide is for

This guide is written for the Canadian who owns or is about to own a Florida property that will produce rental income, and who needs to understand the single most consequential US tax election available to non-resident landlords. Specifically, it addresses three profiles. The first is the Canadian who has just closed on a Florida long-term rental and will receive the first month's rent through a US property manager. The second is the Canadian who has been collecting rent from a US property for years without filing a 1040-NR and is now trying to get into compliance. The third is the Canadian who already files 1040-NRs but has never formally made the § 871(d) election, or who is unsure whether the election is in effect and whether the deductions claimed are legally protected.

This guide assumes the reader has an ITIN already or has applied for one. The election cannot be made without an ITIN because the 1040-NR cannot be filed without an ITIN. If you do not have an ITIN, start with the dedicated guide in chapter 08 (banking and identifiers).

This guide is not the right place to start if you operate the Florida property as a short-term rental with substantial services (daily cleaning, concierge, meals). Aggressive STR operations may be reclassified by the IRS as a US trade or business under IRC § 162 rather than passive rental, in which case the income is already ECI by default and the § 871(d) election is technically unnecessary. The classification belongs to a cross-border tax specialist; see also the AirDNA STR guide in chapter 01.4.

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Section 1. The default rule and why it is brutal

The US federal tax default for a non-resident receiving US-source rental income is mechanically simple and economically punishing. Under IRC § 871(a), a nonresident alien is subject to a 30 percent tax on gross rental income classified as FDAP, payable on the full gross with no deductions. Under IRC § 1441, the payer of the rent (typically the US property manager or the tenant if the landlord receives rent directly) is required to withhold the 30 percent at the source and remit it to the IRS. The Canadian receives the net 70 percent. [6][10]

Three numbers make the punishment concrete on a typical Florida deal:

A Quebec resident owns a Tampa duplex producing 30,000 USD of annual gross rent.
Operating expenses (mortgage interest, property tax, insurance, repairs, property management fees, utilities, HOA): 16,000 USD.
Depreciation on the building basis (residential, 27.5-year straight line): 9,500 USD.
Actual economic net before tax: 4,500 USD.

Under the default § 871(a) FDAP rule:

Gross subject to tax: 30,000 USD.
Tax at 30 percent: 9,000 USD.
The Canadian pays 9,000 USD of US tax on a property that economically produced 4,500 USD of cash flow. The effective rate on actual net is 200 percent.

Under the § 871(d) net election:

Gross rent: 30,000 USD.
Less deductions (operating + depreciation): 25,500 USD.
Net rental income: 4,500 USD.
US tax at graduated rates (10 percent bracket for the first 11,925 USD of single-filer ECI in 2025): 450 USD.
The Canadian pays 450 USD of US tax. Effective rate on actual net: 10 percent.

The difference is 8,550 USD per year on a single property. Across a five-year hold, the difference compounds to 42,750 USD before any state-level or Canadian-side considerations. The election is the single highest-leverage compliance step a Canadian landlord can take. [6][10]

Verified factUnder IRC § 871(a) and IRC § 1441, gross rental income from US real property received by a nonresident alien individual not engaged in a US trade or business is taxed at a flat 30 percent of gross, with no deductions allowed for operating expenses or depreciation. The withholding agent (typically the US property manager) must withhold the 30 percent at the source unless the recipient provides a valid Form W-8ECI evidencing the § 871(d) election. [6][10]

Verified factOnce a valid IRC § 871(d) election is in place and a Form W-8ECI is provided to the withholding agent, the withholding obligation under IRC § 1441 is lifted and the rental income is taxed on a net basis at graduated rates starting at 10 percent under IRC § 871(b). [1][6]

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Section 2. What the election actually is and what it covers

IRC § 871(d) allows an NRA who owns real property in the US held for the production of income to elect to have all such income treated as ECI. The election applies to all of the NRA's US real property held for the production of income, not selectively, and includes income from rents, royalties from mines, oil or gas wells, gains from the sale or exchange of US real property, and gains from the sale of timber, coal, or domestic iron ore with a retained economic interest. [1][2][3]

Several features of the election are worth highlighting.

The election applies to all of the NRA's US real property held for income production. A Canadian with a Tampa duplex and an Orlando single-family rental cannot elect for one and not the other. The election covers both. The same applies to a Canadian who later acquires additional US rental property after the election is in place; new properties are automatically covered. [1][3]

The election does not apply to real property the NRA holds for personal use rather than income production. A Canadian's Florida vacation condo used exclusively by the family is not covered, even though the condo would otherwise generate gain on sale. The same condo, once converted to a rental, becomes subject to the election by virtue of being held for income production. [3]

The election remains in effect for every subsequent tax year until revoked, even in years where the NRA has no rental income from the elected property. A Canadian who elects in year 1, has no rent in year 2 (vacant), and resumes rental in year 3 does not need to re-elect. The election persists. [1][3]

The election operates independently of the Canada-US Income Tax Convention. Article VI of the treaty assigns primary taxing right over real property income to the country where the property is situated; the treaty does not override or replace IRC § 871(d), which is a domestic US Code provision. The Canadian who elects under § 871(d) is using the US domestic mechanism, not a treaty provision. The treaty does, however, prevent double taxation by providing the foreign tax credit on the Canadian return for US tax actually paid. [11][12]

The election is made at the individual level for an NRA partner in a US partnership. If the partnership owns the rental property, each NRA partner files a personal election and 1040-NR; the partnership does not make the election on behalf of its NRA partners. [9]

Verified factUnder Treasury Regulation § 1.871-10(b), the IRC § 871(d) election applies to all US real property held by the NRA for the production of income, and once made, the election cannot be limited to a subset of properties. New US real property acquired after the election is in place is automatically covered. [3]

Verified factThe IRC § 871(d) election remains in effect for all subsequent taxable years until properly revoked, even for years in which the NRA has no rental income or where the property is vacant. [1][3]

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Section 3. How the election is made: the statement and what it must contain

The mechanics are not complicated, but the IRS is specific about what must appear in the election statement. Under Treasury Regulation § 1.871-10(d)(1), the NRA makes the initial election by attaching a written statement to a Form 1040-NR (or to a Form 1040-X amending a prior year's 1040-NR) for the year of the election. [1][3]

The statement must include the following five elements. Each one matters because omission is the most common cause of IRS rejection of the election.

A declaration that the NRA is making the election under IRC § 871(d).
A statement that the choice is being made under IRC § 871(d) (the domestic Code provision) or under a tax treaty (which, for the Canada-US Convention, would be a different mechanism). For Canadian landlords, this is almost always § 871(d). [1]
A complete list of all of the NRA's US real property, or any interest in US real property, of which the NRA is titular or beneficial owner. The list must give the legal identification of each property (street address, parcel ID, county). For US timber, coal, or iron ore, the legal identification of those interests must also be given. [1]
The extent of direct or beneficial ownership in each item of US real property. For a Canadian holding 100 percent personally, this is "100% direct ownership." For a Canadian who is a 50 percent partner in a US partnership owning the property, this is "50% beneficial through partnership X."
Identification of any taxable years in which a prior § 871(d) election was revoked, or a new § 871(d) election was made. For a first-time elector, this entry is "None." [1]

The statement is one to two pages, typically. It is attached to the 1040-NR for the first year of the election. It is not refiled in subsequent years; the original election persists. [3]

The election can also be made retroactively via Form 1040-X for a prior year, provided the year is still within the IRS amendment window. The Canadian who collected rent for three years without filing 1040-NRs and now wants to come into compliance with the deductions intact files three 1040-NRs (one per year), each with a § 871(d) election statement attached, working backward from the most recent. The 16-month rule (Section 4 below) constrains which years can still be filed with deductions claimed. [1][7]

Verified factTreasury Regulation § 1.871-10(d)(1) specifies that the IRC § 871(d) election is made by attaching a written statement to the NRA's income tax return (Form 1040-NR) or amended return (Form 1040-X) for the year of the election. The statement must list all US real property held by the NRA for the production of income and identify the extent of ownership in each. [1][3]

OpinionMany cross-border tax practitioners file the 1040-NR for the first rental year with a complete election statement attached, even when the property generates a small loss after deductions, simply to lock in the election for future years. The cost of preparing the 1040-NR is far less than the future cost of being trapped in the 30 percent gross-FDAP regime if the property generates more income later. The election should be made in the first rental year regardless of the year's net result.

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Section 4. The 16-month rule: the trap that destroys the election's value

The § 871(d) election, by itself, only puts the NRA into the ECI regime. It does not automatically guarantee that deductions will be allowed. The deductions depend on a separate provision: IRC § 874(a). [1][4][7]

IRC § 874(a) provides that an NRA must file a true and accurate return in order to claim deductions. The IRS has interpreted this section to mean that an NRA who files a 1040-NR more than 16 months after the original due date (without regard to extensions) is barred from claiming deductions on that return. The election may be in place; the deductions may be supported by full documentation; the math may be airtight. The IRS still denies the deductions if the return is filed past the 16-month window. The result is that the NRA is taxed at 30 percent on the gross even though the election has been made. [1][7]

The original due date for an NRA's Form 1040-NR is June 15 of the year following the tax year, with a six-month automatic extension via Form 4868 to December 15. The 16-month rule runs from the June 15 original due date. For the 2025 tax year:

Original due date: June 15, 2026.
16 months past original due date: October 15, 2027.
After October 15, 2027, the IRS may deny deductions on the 2025 return.

The IRS has discretion to grant a waiver under Treasury Regulation § 301.9100-3 if the NRA acted reasonably and in good faith and the government's interests are not prejudiced. The waiver is available but is not a right; it depends on the facts of the case and the time between the missed deadline and the corrective filing. The Treasury Inspector General for Tax Administration (TIGTA) has identified NRA non-compliance with the rental filing requirement as a significant compliance issue, and the IRS has sharpened scrutiny of late-filed 1040-NRs as a result. [7]

The practical implication for Canadian landlords is direct: file every 1040-NR on time, every year, even when the result is a near-zero or small loss after deductions. The cost of a CPA-prepared 1040-NR (typically 800 to 1,500 USD per year for a single-property file) is small relative to the cost of losing the deductions on a single year. [7]

Verified factUnder IRC § 874(a), as administered by the IRS, an NRA who fails to file a Form 1040-NR within 16 months of the original due date (without regard to extensions of time to file) is not permitted to claim deductions from gross income, and is ineligible to claim certain credits, unless the IRS grants a waiver under Treas. Reg. § 301.9100-3. [1][4][7]

OpinionThe 16-month rule is the single most underestimated risk in non-resident US rental compliance. We have seen Canadian landlords who held a Florida property for five years, never filed a 1040-NR, and only discovered the obligation when applying for a US bank account or selling the property. By the time they engage a cross-border CPA, the earliest two or three years are past the 16-month window. The catch-up filing recovers compliance for the more recent years but loses deductions on the older ones, converting near-zero economic income into 30-percent-of-gross retroactive tax bills. The cure is straightforward: file every year, on time, without exception.

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Section 5. Form W-8ECI: stopping the withholding going forward

The election under § 871(d), once made, only governs the year-end tax computation. It does not, by itself, stop the property manager from withholding 30 percent at the source under IRC § 1441 each month. The mechanism for stopping the monthly withholding is Form W-8ECI, given by the Canadian to the property manager or tenant. [1]

Form W-8ECI is a one-page IRS form (Form W-8ECI, Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States) on which the Canadian:

Identifies themselves with their name, country of citizenship (Canada), permanent address, US ITIN.
Certifies under penalties of perjury that the rental income is effectively connected with a US trade or business under IRC § 871(d).
Lists the specific items of income to which the certificate applies.

The W-8ECI is given to the withholding agent (typically the property manager) in the first year the § 871(d) election is made. It is updated annually thereafter, or when the underlying facts change. Without a current W-8ECI on file, the property manager continues to withhold 30 percent of gross rent each month and remits it to the IRS, even if the underlying election is technically in place. The Canadian then has to wait until year-end to recover the over-withholding through the 1040-NR refund cycle. [1]

The full mechanics of Form W-8ECI, including how to complete it line by line and what to do when the property manager refuses to accept it, are covered in the dedicated W-8ECI guide in this chapter.

Verified factForm W-8ECI is required to be given by the NRA to any withholding agent or payer in the first year that the IRC § 871(d) election is made and in any subsequent year when required. The W-8ECI is what stops the IRC § 1441 withholding obligation prospectively; the election alone does not. [1]

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Section 6. The Canada-US treaty and what the election does (and does not) change

A common misunderstanding among Canadian property owners is that the Canada-US Income Tax Convention either replaces the § 871(d) election or makes it unnecessary. Neither is correct. The treaty and the election operate on different layers and serve different functions.

Article VI of the Canada-US Convention assigns primary taxing right over income from real property to the country where the property is situated. For a Canadian's Florida rental, this means the United States has primary taxing right; Canada has secondary taxing right and provides relief from double taxation through the foreign tax credit on the Canadian return. The treaty does not say how the United States must compute its tax on the rental income. That is a domestic-US-Code question, governed by IRC § 871(a), § 871(b), and § 871(d). [11][12]

Without the § 871(d) election, the United States exercises its primary taxing right by imposing the 30 percent gross FDAP tax. The Canadian then claims a foreign tax credit on the Canadian T1 for the US tax paid, but the credit is limited to the Canadian tax that would otherwise apply to that net rental income. The math is: the Canadian pays 9,000 USD of US tax on 30,000 USD of gross rent (4,500 USD net), claims a foreign tax credit on the T1 against the Canadian tax on 4,500 USD CAD-equivalent of net rental income, and has substantial unused foreign tax credit (which generally cannot be carried back or forward in a way that recovers the over-payment). The result is a real economic loss equal to the difference between the US gross tax and the matched-Canadian-net tax, often 6,000 to 8,000 USD per year. [12]

With the § 871(d) election in place, the United States taxes only the net at graduated rates. The Canadian pays 450 USD of US tax on 4,500 USD of net rental income, claims a foreign tax credit on the T1 against the Canadian tax on 4,500 USD CAD-equivalent of net rental income, and the credit fully offsets the Canadian tax on the same income. There is no economic loss. Both jurisdictions take their share of the same net base. [12]

The treaty also contains a separate election mechanism in older protocols related specifically to net-basis treatment of US rental income for Canadian residents. This mechanism predates and parallels the IRC § 871(d) domestic election; modern practice is to use the IRC § 871(d) election rather than the treaty election because the IRC mechanism is simpler, better documented in IRS guidance, and the W-8ECI integration is well-understood. [11][12]

Verified factArticle VI of the Canada-US Income Tax Convention assigns primary taxing right over real-property rental income to the State in which the property is situated. The treaty does not override or replace the IRC § 871(d) election; the two operate on different layers. [11][12]

Verified factA Canadian who pays US tax on net rental income (under the § 871(d) election and § 871(b)) is entitled to claim a foreign tax credit on the Canadian T1 return for the US federal tax paid, computed on a per-country basis under § 126 of the Income Tax Act, subject to the limitation that the credit cannot exceed the Canadian tax that would otherwise apply to that same net rental income. [12]

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Section 7. Worked example: Quebec resident, Tampa duplex, full election cycle

This example walks one election end to end with all figures in USD unless noted, rates as of April 2026. It is illustrative.

A Quebec resident closes on a Tampa duplex for 425,000 USD on June 1, 2025, with 25 percent down via a DSCR loan vested in a Florida LLC. The first tenant moves in July 1, 2025; the second tenant moves in August 1, 2025. Both tenants pay 1,500 USD per month directly to a US property management company.

Tax year 2025 (partial year, July through December)

Gross rent collected by property manager: 6 months × (1,500 + 1,500) = 18,000 USD (but partial months mean actual is approximately 16,500 USD).
Property manager withholds 30 percent at source under IRC § 1441 (no W-8ECI yet): 4,950 USD remitted to IRS on Form 1042. Canadian receives net 11,550 USD.
Operating expenses for partial year: mortgage interest 8,200, property tax 2,100, insurance 1,400, property management fee 1,650 (10% of gross), repairs 800, utilities (paid by landlord) 600, HOA 0. Total operating: 14,750 USD.
Depreciation for partial year: building basis (acquired June 1, in-service July 1) approximately 320,000 USD over 27.5 years, prorated for half-year convention: approximately 5,800 USD.
Total deductions: 14,750 + 5,800 = 20,550 USD.
Net rental income (loss): 16,500 - 20,550 = (4,050) USD net loss.

Filing the 2025 Form 1040-NR

ITIN obtained in April 2026 via Montreal-based CAA (separate process).
Cross-border CPA prepares the 2025 Form 1040-NR.
IRC § 871(d) election statement attached to the 1040-NR, listing the Tampa duplex with full address and parcel ID, declaring 100% direct ownership through the Florida LLC (single-member, disregarded for US tax), declaring this is the first § 871(d) election by the taxpayer.
Schedule E reports gross rent 16,500, deductions 20,550, net (4,050) loss.
US tax owed: 0 USD (net loss).
Refund of withheld tax: 4,950 USD requested.
1040-NR filed via mail to IRS Austin Service Center on June 10, 2026, before the June 15, 2026 deadline.
Form W-8ECI provided to the property management company simultaneously with the filing, so 2026 monthly withholding stops.

Tax year 2026 (full year)

Gross rent: 36,000 USD (no withholding because W-8ECI on file).
Operating expenses: approximately 28,500 USD (mortgage interest, property tax, insurance, management, repairs, utilities, HOA).
Depreciation: approximately 11,600 USD (full year on building basis).
Total deductions: 40,100 USD.
Net rental income (loss): (4,100) USD loss.
2026 Form 1040-NR filed June 2027 with no separate election statement (the 2025 election persists).
US tax owed: 0 USD.
Loss carries forward against future net rental income from the same activity.

Tax year 2030 (year of sale)

Five-year hold; property sold for 510,000 USD.
Cumulative depreciation taken 2025-2030: approximately 53,000 USD.
Adjusted basis at sale: 425,000 - 53,000 (depreciation reduction required by IRC § 1250) = 372,000 USD.
US gain at sale: 510,000 - 372,000 = 138,000 USD.
FIRPTA withholding at closing (15% of 510,000): 76,500 USD withheld.
Year-end 1040-NR for 2030 reports the gain, reconciles the FIRPTA withholding, and computes the actual capital-gains tax on the 138,000 gain plus the depreciation recapture component. Refund of excess FIRPTA withholding requested.
The election remains in place through the year of sale and is automatically terminated when the NRA no longer holds any US real property held for income production.

OpinionThe Section 7 example shows two structural features of the election that Canadians frequently miss. The first is that years where the property generates a tax loss are still filed every year, even though no US tax is owed; the filings are what preserve the deduction stream and keep the 16-month clock from running out. The second is the depreciation-recapture trap at sale: the election allowed depreciation deductions every year, which reduced the property's adjusted basis. At sale, the gain is computed against the lower adjusted basis, not the original purchase price. Forgetting this step is one of the items the Treasury Inspector General has flagged as a recurring NRA compliance issue. The cure is to track basis adjustments year by year and reconcile at sale. [7]

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Section 8. The Canadian and US sides: what changes once the election is in place

Once the § 871(d) election is filed and the W-8ECI is delivered to the property manager, several downstream effects need to be coordinated across both jurisdictions. The table below maps them.

Topic	Federal US	State (Florida)	Federal Canada	Provincial (Quebec reference)
Annual filing	Form 1040-NR every year, with Schedule E reporting gross rent, operating deductions, and depreciation. Election statement attached only in the first year. [1][9]	No state income tax.	Worldwide income; the same rental income is reportable on T1 (in CAD) with Canadian deductions and Canadian capital cost allowance. Foreign tax credit for US tax paid. [12]	TP-1 for Quebec residents reflects the same rental income, with foreign tax credit on TP-772.1.
Withholding	Form W-8ECI given to the property manager; updated annually. Stops 30% IRC § 1441 withholding. [1]	Not applicable	Not applicable	Same federal framework
Sale of property	Election covers the gain on sale (treated as ECI). FIRPTA withholding still applies at 15% gross, but the year-end 1040-NR reconciles to actual capital-gains tax. Adjusted basis reduced by accumulated depreciation. [1][3]	Florida documentary stamp tax on the deed at sale (paid by seller).	Capital gain on T1 at adjusted cost base versus proceeds, in CAD at acquisition and disposition exchange rates. The CRA does not necessarily accept the US adjusted basis (with depreciation reduction) as the Canadian ACB; the Canadian ACB is independently computed.	Same federal framework
Recordkeeping	Year-by-year tracking of accumulated depreciation, operating-loss carryforwards (for ECI activity), and basis adjustments. Required to substantiate deductions if examined. [9]	Not applicable	T1135 if specified-foreign-property cost amount exceeds CAD 100,000. The US ITIN does not appear on T1135. CCA tracked separately on the Canadian side. [13]	Same federal framework
Revoking the election	Form 1040-X attaching a revocation statement, filed for the year the election was made or any subsequent year. NRA cannot revoke and re-elect within 5 years without IRS approval. [1]	Not applicable	Not directly applicable; revocation does not undo Canadian-side reporting positions.	Same federal framework

The Canadian-side capital-cost-allowance (CCA) treatment is worth a brief flag. The CRA permits CCA on rental property at class 1 (4 percent declining balance) or class 1.1 (6 percent for certain post-1987 buildings), but CCA is optional, and many Canadian advisors recommend not claiming CCA on US rental property because doing so creates a recapture event in Canada at sale that does not necessarily align with the US-side depreciation recapture. The Canadian-side decision on whether to claim CCA is independent of the US-side § 871(d) election; the US election is mandatory if the Canadian wants to deduct US depreciation, and the Canadian CCA is optional. [12]

Verified factAn NRA can revoke the IRC § 871(d) election by filing Form 1040-X for the year the election was made, attaching a revocation statement. The IRS generally requires its consent for re-election within 5 years of revocation. [1][3]

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Section 9. Common mistakes Canadians make on the § 871(d) election

Each item below is a recurring error on Canadian 1040-NR files. Each one is preventable.

Filing the first 1040-NR without the election statement attached. A Canadian who files the 1040-NR with Schedule E and claims deductions, but forgets to attach the election statement, has technically not made the election. The IRS may treat the deductions as defective and reassess at the 30 percent gross rate. The fix is to file Form 1040-X amending the original return to attach the statement, ideally before the IRS examines.

Skipping the property list in the statement. The regulation requires a complete list of all US real property held for income production. A Canadian with two Florida properties who lists only one has a defective election that the IRS may treat as incomplete. List every property.

Filing the 1040-NR more than 16 months after the original due date. This is the most expensive mistake. The IRS denies all deductions; the result is taxation at 30 percent gross even though the election was made. The cure (a § 301.9100-3 waiver) is discretionary and not guaranteed. File on time, every year. [7]

Not providing Form W-8ECI to the property manager. The election covers the year-end computation but does not stop the 30 percent monthly withholding by itself. Without W-8ECI, the property manager keeps withholding even though the election is in place. The Canadian gets the over-withholding back at year-end, but that is a 12-month interest-free loan to the IRS.

Forgetting that the election applies to all US real property, not just the one being filed for. A Canadian who acquires a second Florida property in year three and treats it as outside the election creates an inconsistent file. The election covers the second property automatically; the second property's income and deductions must be reported on the same 1040-NR alongside the first.

Forgetting to reduce basis by accumulated depreciation at sale. This is the second item TIGTA has flagged as a chronic compliance issue. The election authorized annual depreciation deductions on Schedule E; those deductions reduce the property's adjusted basis under IRC § 1016. At sale, the gain is computed against the reduced basis. NRAs who compute gain against original purchase price under-report the gain and trigger IRS scrutiny. [7]

Confusing the § 871(d) election with the treaty election. Older guidance and some practitioner literature reference a treaty-based net-basis election under earlier protocols of the Canada-US Convention. Modern practice uses the domestic IRC § 871(d) election. Mixing the two on the statement (declaring the election under both § 871(d) and the treaty) creates ambiguity. Pick one (§ 871(d)) and state it cleanly. [11]

Trying to revoke and re-elect within 5 years. Revocation followed by re-election within 5 years requires IRS consent, which is not automatic. A Canadian who revokes (perhaps because they thought the election was no longer beneficial) and then wants to re-elect later is in a 5-year cooling-off period under Treas. Reg. § 1.871-10(d)(2). Plan revocations carefully. [3]

Assuming the election persists through a property held in a US partnership or corporation. If the Canadian's US property is held by a US partnership of which the Canadian is a partner, the election is made at the individual NRA level, not at the partnership level. If the Canadian transfers the property into a US corporation (less common, with cross-border tax disadvantages), the corporation's income is taxed under different rules entirely (Form 1120-F, branch profits tax, etc.) and the § 871(d) election does not apply. Structural changes require re-evaluation. [9]

Letting the depreciation accumulate and never tracking it on the Canadian side. The CRA recognizes that the Canadian taxpayer has US depreciation deductions on file but does not automatically incorporate them into the Canadian ACB. The Canadian ACB (used for Canadian capital gain at sale) is computed independently. Track both numbers. [12]

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Section 10. Action checklist: from default FDAP regime to net-basis ECI compliance

Each step assumes prior steps are complete.

Confirm you have an ITIN. Without it, the 1040-NR cannot be filed, and the election cannot be made. See chapter 08 ITIN guide.
Identify all US real property held for the production of income. Pull the deed, parcel ID, and county for each. The list goes in the election statement.
Engage a cross-border CPA to prepare the 1040-NR and the election statement. A typical cost is 800 to 1,500 USD per year for a single-property file.
Prepare the election statement to comply with Treas. Reg. § 1.871-10(d)(1): name, election under § 871(d), property list with extent of ownership, prior election history (if any).
Prepare Schedule E with full operating-expense and depreciation detail. Use the actual building-basis allocation (typically 75 to 85% of purchase price assigned to building, balance to land) for depreciation.
Attach the election statement and Schedule E to Form 1040-NR. File by June 15 of the year following the rental year (or December 15 with the Form 4868 extension).
Prepare and deliver Form W-8ECI to the US property manager (or to each tenant if the Canadian receives rent directly). Confirm the property manager has the W-8ECI on file before the next rent collection.
Update the W-8ECI annually with the property manager.
Track accumulated depreciation year by year. The annual 1040-NR shows the depreciation taken; build a simple spreadsheet showing cumulative depreciation, current adjusted basis, and the basis number that will appear on the eventual sale-year computation.
Coordinate with the Canadian-side T1 preparer. The same rental income reports on the T1 with the foreign tax credit; the CCA decision is a separate Canadian-side election.
File the 1040-NR every year, even loss years and zero-income years, while the property is held. The election persists; the filings preserve the deduction stream.
At sale, ensure the closing agent applies the FIRPTA 15 percent gross withholding, ensure the 1040-NR for the sale year reconciles the withholding to the actual capital-gains tax, and ensure the basis reduction by accumulated depreciation is correctly reflected. File the 1040-NR by the standard June 15 deadline of the year following the sale year.

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Section 11. Frequently asked questions

If the election applies to all my US property, can I structure around it by holding one property in a US corporation? Yes, but the corporation's income is taxed under Subchapter C rules (Form 1120-F, possibly branch profits tax) which are typically more punitive than the § 871(d) regime for individual NRAs. Most Canadian cross-border tax practitioners advise against US corporations for personal rental property held by NRAs. A US LLC (taxed as a disregarded entity for a single-member NRA) is the more common structure and does not change the application of § 871(d) at the individual level.

Does the election cover gains from sale of the property, or just rental income during the hold? Both. Treasury Regulation § 1.871-10(b) explicitly covers gains from the sale or exchange of US real property held for the production of income, in addition to rental income. The election does not change the FIRPTA 15 percent gross withholding at closing (which is collected mechanically at the closing table by the buyer's agent), but it allows the year-end 1040-NR to compute the actual gain on a net basis and reconcile to the FIRPTA withholding. [3]

Can I revoke the election? Yes, by attaching a revocation statement to a Form 1040-X for the year the election was made (or any subsequent year). However, re-election within 5 years requires IRS consent and is not automatic. Plan revocations carefully. [1][3]

What if my property is partly personal-use and partly rented? The election applies only to the portion held for the production of income. A property used personally for part of the year and rented for the other part is a mixed-use property; the deductions for the rental portion are subject to allocation rules. Substantial personal use can also affect whether the deductions are even available (passive activity rules, vacation-home rules under IRC § 280A). The mixed-use scenario is fact-specific and benefits from a cross-border CPA review.

My property is held by a US partnership in which I am a 50 percent partner. Who makes the election? Each NRA partner makes the election at the individual level on their own 1040-NR. The partnership does not make the election on behalf of its partners. The partnership reports the rental income and deductions through Schedule K-1 to each partner; the partner reports their share on Schedule E and treats it as ECI under their personal § 871(d) election. [9]

If I have not filed 1040-NRs for years, can I still make the election retroactively? Yes, by filing 1040-NRs for the prior years (one per year) with the election statement attached to each. The 16-month rule limits which years can be filed with deductions intact. Years more than 16 months past the original due date may be denied deductions (subject to a § 301.9100-3 discretionary waiver). Earlier years may need to be filed at the gross 30 percent rate. Engage a cross-border CPA for catch-up filings. [7]

Does the election affect my US estate tax exposure? Indirectly. Holding US real property as an NRA exposes the property to US estate tax under IRC § 2103 with a low NRA-specific exemption (60,000 USD as of 2026, subject to treaty modification). The § 871(d) election does not change estate-tax exposure. Estate planning is a separate exercise (chapter 05 of this manual).

Does the election apply to short-term rentals (Airbnb, Vrbo)? Yes, but in many STR cases the activity is already classified as a US trade or business under IRC § 162 by virtue of the level of services provided, in which case the rental income is automatically ECI without needing the § 871(d) election. The election is typically made anyway as a protective measure. The classification belongs to a cross-border CPA; see the AirDNA STR guide in chapter 01.4.

What if the property manager refuses to accept Form W-8ECI? Some property managers refuse to accept W-8ECI because they are unfamiliar with the form or because their internal compliance process defaults to W-8BEN for non-US payees. A Canadian whose property manager will not accept W-8ECI has two options: switch to a property manager who handles cross-border landlords routinely (most Florida property managers in Tampa, Orlando, and South Florida do), or accept the 30 percent monthly withholding and recover at year-end through the 1040-NR refund. The latter is less efficient but does not break the election.

Does the IRS keep a list of who has elected under § 871(d)? The IRS maintains the election in the taxpayer's file based on the attached statement to the first-year 1040-NR. There is no separate registry. The election's existence is documented by the original statement and the continuing pattern of 1040-NR filings reporting net rental income under Schedule E.

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Section 12. Honest scope statement and what is not in this guide

This guide explains the IRC § 871(d) net election as it applies to a Canadian foreign-national investor or property owner with a US (typically Florida) rental property. It is the election-mechanics reference; it is not a substitute for cross-border tax preparation.

What is not in scope here:

The line-by-line preparation of Form 1040-NR. See chapter 03 dedicated 1040-NR preparation guide.
The line-by-line preparation of Form W-8ECI, including what to do when the property manager refuses to accept it. See the dedicated W-8ECI guide in this chapter.
The line-by-line preparation of Schedule E and the depreciation calculation under IRC § 168 (MACRS, 27.5-year residential life, half-year convention). See chapter 03 depreciation guide forthcoming.
The Canadian-side rental income reporting on T1 and TP-1, including the foreign tax credit computation under § 126 of the Income Tax Act and the CCA decision. See chapter 03 Canadian-side rental guide forthcoming.
The detailed FIRPTA process at sale, including Form 8288, 8288-A, 8288-B, and the reduced-withholding-certificate path. See chapter 04 (sale).
US estate tax exposure for NRAs holding US real property. See chapter 05 (succession).
The Canada-US Convention treaty election for net-basis treatment, which predates IRC § 871(d) and is rarely used in modern practice. The IRC mechanism is preferred. [11]
Equivalent comparisons for Ontario, British Columbia, Alberta, and other Canadian provinces. The provincial layer in this guide uses Quebec as the reference; equivalent comparisons for other provinces are forthcoming.

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