IRS Schedule E — Canadian Landlord's Guide to US Rental Tax

US tax classification: Non-Resident Alien vs. Resident Alien

Most Canadian snowbirds who own Florida rental property are classified as Non-Resident Aliens (NRAs) for US federal income tax purposes, because they do not meet either the Green Card test or the Substantial Presence Test (183 days in the US calculated using a 3-year weighted formula).

Some long-term snowbirds who spend 183+ weighted days in the US may be classified as Resident Aliens and file Form 1040 (the same form as US citizens). This is rare for most Canadian property owners but becomes a concern if you spend 4+ months per year in Florida over multiple consecutive years. The Canada-US Tax Treaty provides a closer connection exemption (Form 8840) that allows you to claim treaty residency in Canada even if you exceed the substantial presence threshold — protecting Canadian tax residency.

Default 30% withholding vs. the ECI election

Without making any election, US rental income paid to an NRA is subject to a 30% flat withholding tax on gross rental income — no deductions. This is economically punishing: on $50,000 gross rental income, you'd owe $15,000 US tax before any expenses are considered.

The alternative: elect to treat the rental income as Effectively Connected Income (ECI) under IRC §871(d). Under the ECI election:

• You file Form 1040-NR with Schedule E
• You report all gross rental income
• You deduct all allowable rental expenses
• Tax is applied only to net rental income at graduated US tax rates

The ECI election is made by filing a timely 1040-NR (or an amended return if late). Once made, the election continues in effect for all subsequent years until revoked. Revoking the election requires IRS consent.

Reporting income on Schedule E

Schedule E (Form 1040 / 1040-NR) — Supplemental Income and Loss — is the form where you report rental income and expenses. For each rental property, you complete a separate column (up to 3 properties per Schedule E; additional properties use additional pages).

Income to report:

• All rents received during the tax year (cash basis) or accrued (accrual basis)
• Security deposits applied to rent (if applied in the current year)
• Advance rents received (reported in the year received, regardless of when earned)

Not income:

• Refundable security deposits (as long as they remain refundable)
• Florida sales tax collected on behalf of the state (pass-through, not income)

Deductible expenses on Schedule E

The following expenses are deductible against rental income on Schedule E:

Mixed personal / rental use — the 14-day rule

If you also use the property personally during the year, the IRS applies special rules under IRC §280A:

• Personal use days — Any day you (or a family member at less than fair market rent) use the property counts as a personal use day.
• Rental days — Days rented at fair market value.
• If personal use > greater of 14 days or 10% of rental days: The property is a personal residence with rental income. Expenses are allocated between personal and rental use. Rental expenses cannot exceed rental income (no loss deduction allowed); excess expenses carry forward.
• If personal use ≤ 14 days or 10% of rental days: The property is a rental property and full Schedule E deductions apply, including potential rental losses (subject to passive activity rules).

For Canadian snowbirds who use their property a few weeks per year: carefully track all personal use days and rental days to ensure you remain under the 14-day threshold if you want full Schedule E deductions.

Schedule E and Canadian CRA reporting

The same rental income must be reported to both the IRS (on 1040-NR / Schedule E) and the CRA (on T776 — Statement of Real Estate Rentals). The US and Canadian rules differ in important ways:

• Depreciation (CCA) — The IRS requires depreciation using MACRS at 27.5 years; the CRA allows CCA on buildings at Class 1 (4%) or Class 3 (5%). CCA is elective under Canadian rules (you can choose not to claim it); US depreciation is mandatory (it reduces your cost basis whether or not you claimed it).
• Foreign Tax Credit — US federal income tax paid on Schedule E rental income is eligible for a Foreign Tax Credit on your Canadian return (Form T2209). This prevents double taxation on the same income. The credit is limited to the Canadian tax that would have been payable on that income.
• Filing deadlines — US 1040-NR is due June 15 for NRAs with no US-source wages (extendable to December 15). Canadian T776 is filed with your T1 return (April 30 due date, or June 15 if self-employed).