What U.S. tax filings do Ontario residents owe if they own a U.S. vacation home?
As an Ontario resident with a U.S. vacation home, you may have Canadian reporting to do as well as whatever U.S. filings apply, and a vacation home used mainly as a personal residence is generally not specified foreign property for Form T1135, although any income it earns must still be reported in Canada. The U.S. side of owning the property is set by U.S. law, and how it applies depends on your situation, so it is worth confirming with a U.S. tax adviser.
In Canada, you must file Form T1135 if specified foreign property cost more than $100,000 at any time in the year. A vacation home used mainly as a personal residence is personal-use property and is excluded. If you rent it with a reasonable expectation of profit, it can become specified foreign property.
Under the Canada–U.S. Tax Convention, rental income from U.S. real property and gains from selling it may be taxed in the U.S., and Canada gives a deduction from Canadian tax for U.S. income tax paid on U.S.-source income. You must still report all income from foreign property to the CRA, whatever its cost. Where U.S. tax was paid, the CRA asks paper filers to attach U.S. tax documents, and electronic filers should keep them.
Key takeaways
- Form T1135 is required if specified foreign property cost more than $100,000 at any time in the year.
- A vacation home used mainly as a personal residence is excluded from T1135, but renting it with a reasonable expectation of profit can make it reportable.
- You must report all income from foreign property to the CRA, whatever its cost amount.
- The federal foreign tax credit is generally the lesser of the foreign income tax you paid and the Canadian tax otherwise payable on your net income from that country.