U.S. Vacation Property Tax Compliance for Ontario Owners

Many Ontario residents own a condo or house in Florida or another U.S. state. It is easy to think of it as a simple vacation home, but owning it can create duties in both countries, especially if you rent it out or later sell it.

This article covers the Canadian side: reporting, rental income, the foreign tax credit and the sale. U.S. filing and withholding rules are set by the U.S., so they are not covered here and need a U.S. tax adviser.

Personal use or rental: the line that drives your duties

Specified foreign property does not include personal-use property, such as a vacation home used mainly as a personal residence. In the CRA's Florida condo example, a condo used only as a vacation home is not reported on T1135.

The same condo rented for eight months with a reasonable expectation of profit is specified foreign property and must be reported. Part-year rental only to recover expenses, with no expectation of profit, is treated as personal use.

Form T1135 and the $100,000 threshold

If you own specified foreign property costing more than $100,000 at any time in the year, you must file Form T1135. The threshold is based on cost, generally the adjusted cost base, not market value. Part A is the simplified form for a total cost between $100,000 and $250,000, and Part B applies at $250,000 or more.

The form is due with your return: April 30 for most individuals and June 15 for self-employed persons. Penalties for failing to file start at $25 per day for up to 100 days, and knowing or grossly negligent failures are $500 per month for up to 24 months.

Reporting U.S. rental income in Canada

Canadian residents must report all income earned from foreign property, whatever its cost amount. If you received rental income from real estate, you file a statement of income and expenses on Form T776, with gross rents on line 8299 and the net amount from line 9946 carried to line 12600. Co-owners each report their share according to their ownership share.

• Current expenses with a short-term benefit are generally deductible in the year incurred.
• Capital expenses are deducted over time through capital cost allowance.
• Rental buildings are generally Class 1 at 4%, and land is not depreciable.
• You cannot use capital cost allowance to create or increase a rental loss.

Credit for U.S. tax and the treaty

Under the Canada–U.S. Tax Convention, income a Canadian resident earns from real property in the U.S. and gains from selling it may be taxed in the U.S.. Canada gives a deduction from Canadian tax for U.S. income tax paid on U.S.-source income.

In practice, you claim a federal foreign tax credit on line 40500 using Form T2209, and Form T2036 for the provincial credit. The federal 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. The CRA asks paper filers to attach a W-2 slip, a U.S. 1040 return and a U.S. tax account transcript, and electronic filers should keep them.

Selling the U.S. property

In Canada, the gain is the proceeds minus the adjusted cost base and selling costs, reported on Schedule 3. Convert the proceeds at the rate at the time of sale, the cost at the rate on the purchase date, and expenses at the rate when they were incurred. For 2025, half of a capital gain is taxable.

If you rented the property and claimed capital cost allowance, a sale can also create recapture, reported on Form T776. Whether the U.S. withholds tax from the sale price, and what U.S. return you must file, are U.S. questions. How they apply depends on your situation, so it is worth confirming with a U.S. tax adviser before you list the property.

What to do next

• Decide, and document, whether the property is personal-use or rented with a reasonable expectation of profit.
• Keep the purchase price, closing costs and improvement records in U.S. dollars, with dates.
• Check whether the cost is over $100,000 and whether T1135 is due.
• Keep rental records and U.S. tax slips and returns for the foreign tax credit.
• Line up a U.S. tax adviser for U.S. filings and sale withholding, and an Ontario accountant or lawyer for the Canadian side.

Frequently asked questions