US Real Estate for Canadians: Tax-Smart Guide

Buying rental properties in the US seems like a great move for Canadians. The prices are lower, the rental markets are stronger, and you can build serious wealth. But here’s the thing – if you don’t set up your taxes and legal structure right from the start, you can end up paying way more than you should.

Carmen Da Silva is a CPA who’s been helping Canadians buy US rental properties for years. She started buying single-family rentals back in 2008 during the mortgage crisis, built a portfolio of over 75 properties, and now runs a company that makes it easier for other Canadians to do the same thing.

Let’s break down what you actually need to know.

The Three Big Things You Need to Get Right

Before you buy your first US rental property, you need to think about three critical areas. Miss any of these and you’ll have headaches for years.

Understanding How Taxes Work in Both Countries

You’re going to file taxes in both countries. There’s no way around it.

In the US, you’ll pay federal tax on your rental income. Some states also charge income tax (like California), while others don’t (like Texas or Florida). You need to know what you’re dealing with before you buy.

Back in Canada, you still have to report that US income on your Canadian tax return. The good news? You usually get a foreign tax credit for what you paid in the US, so you’re not actually paying twice. But you need to report everything correctly or you’ll have problems.

The key thing to remember: where you live and where your property sits both matter for taxes.

Getting Your Entity Structure Right

You can’t just buy a US property in your personal name and call it a day. Well, you can, but it’s not usually the smartest move.

Most investors set up a holding company – often in Wyoming because of the privacy protection and business-friendly laws. Then from that parent company, you register in each state where you buy property.

For example, if you buy properties in Texas and North Carolina, you might have a Wyoming parent company with subsidiaries in those two states. This keeps everything organized and legal in each place.

Each state wants you properly registered to do business there. It’s not just about taxes – it’s about having the legal right to own and operate rental properties in that jurisdiction.

Protecting Your Assets and Planning Your Estate

Here’s something most people don’t think about: your Canadian will might not do anything for your US properties.

If something happens to you, your family could get stuck in probate hell trying to deal with properties across the border. The solution? Create a local will in the state where you own property. It doesn’t have to be complicated, but it needs to exist.

Proper entity structure also protects you from liability. If something goes wrong with one property, you don’t want it affecting your other properties or personal assets.

Book Your Strategy Call

The LLC Mistake That Costs Canadians Money

Here’s a trap almost every Canadian falls into: you talk to a US lawyer or accountant, and they tell you to set up an LLC (Limited Liability Company). It’s standard advice in the US.

The problem? Canada doesn’t recognize LLCs the same way the US does. They’re what’s called “hybrid entities,” and this creates a timing mismatch for when you recognize income in each country.

What happens is you can’t claim your foreign tax credits properly, and you end up effectively paying more tax than you should. It’s a mess to sort out later.

The fix: work with someone who understands BOTH tax systems. Not just US tax law, and not just Canadian tax law – both together. This person might be a US accountant with Canadian knowledge or a Canadian accountant with cross-border expertise.

Should You Own Properties Personally or in a Corporation?

This is where it gets interesting. The answer isn’t the same for everyone.

Why Personal Ownership Usually Wins

Most of the tax you’ll pay on real estate doesn’t come from the rental income each year. It comes from capital gains when you sell. And personal capital gains rates beat corporate rates in both countries.

Your annual rental income can often be reduced to almost nothing through depreciation and mortgage interest deductions. Sometimes you’ll even show a loss on paper while Cash Flow stays positive. These losses can offset your employment income or other earnings.

That’s powerful for high-income professionals who need tax deductions.

When Corporate Ownership Makes Sense

If you have a Canadian corporation with retained earnings sitting there, and you want to deploy that money, corporate ownership might work. But understand the trade-offs.

Current US corporate tax sits around 21% federal, plus state taxes in most places – call it 25% total. But as a Canadian resident, you’re still following Canadian tax rules no matter what the US does. And Canada treats passive income in corporations pretty harshly.

For most investors, a flow-through structure where the income hits your personal tax return is the better move.

How to Build Your Portfolio Without Constantly Adding New Cash

Once you own a few properties, you can start using them to buy more properties. Carmen shared how she did this herself.

She took six properties she already owned and used them as collateral for DSCR loans (Debt Service Coverage Ratio – loans based on the property’s income, not your personal income). With that financing, she bought $2.3 million worth of properties in Texas.

This is how you shift from saving for down payments to actually building a portfolio that grows itself. You’re using the equity you’ve built in existing properties to fund new purchases.

Most investors don’t know this is possible. They think they need to save another $50,000 every time they want to buy a new property. You don’t – you just need to know how to access the equity you’ve already built.

The Property Tax Game You Need to Play

States with no income tax make up for it with higher property taxes. You need to stay on top of this because property taxes can eat into your cash flow fast.

Here’s what most investors miss: when a property changes from owner-occupied to investment property, the tax rate usually goes up. If you’re using last year’s owner-occupied tax bill to estimate your costs, you’re going to be short.

Smart investors work with property tax specialists who constantly look for opportunities to get reassessments and lower your bill. These specialists work on performance fees – they only get paid if they find you savings.

They also track all the payment deadlines across different jurisdictions, which is harder than it sounds when you own properties in multiple states.

Teaching Your Kids to Build Wealth Early

Carmen has watched too many young professionals make the same mistake. They graduate, get a good job, and immediately buy an expensive condo or house. All their income goes to the mortgage. They can’t invest in anything else. They’re trapped.

Here’s a better approach: take that $500,000 down payment for a Toronto condo and buy five US rental properties at $100,000 each instead.

Each property generates about $1,000 a month in cash flow. That’s $5,000 a month total. You can rent anywhere in downtown Toronto with that income, you own five appreciating assets instead of one, and you have the flexibility to move if a better job comes up.

You’re building wealth while maintaining the lifestyle flexibility young people actually want. You’re not house-poor, and you’re not tied down.

Carmen started her own kids investing during their first internships. They built equity while still in school. By the time they graduated, they had assets working for them instead of starting from zero.

Asset Management vs Property Management

Most investors don’t understand the difference between these two things. It matters.

Property management handles the day-to-day stuff: tenants, repairs, rent collection, maintenance calls. That’s important, but it’s not strategic.

Asset management is about your whole portfolio. It’s looking at all your properties together and making strategic decisions. Should you refinance? Are your rents at market rates? Which properties should you sell? Which should you keep?

When you own properties across multiple states with different property managers, you need someone coordinating the big picture. Otherwise each property operates in isolation, and you miss opportunities that only show up when you look at everything together.

This is especially important when you own 10, 20, or 30+ properties. The complexity grows fast, and without proper asset management, you’re flying blind.

The Bottom Line

US real estate offers real opportunities for Canadian investors. The markets are strong, prices are reasonable, and you can build serious wealth.

But you need to set things up right from the beginning. Get your entity structure correct. Work with someone who understands both tax systems. Think about asset protection and estate planning before you need them.

Don’t fall for the standard US advice that doesn’t work for Canadians. Don’t rush into an expensive primary residence when investment properties could give you more flexibility and better returns.

The investors who do well are the ones who treat this like a business, not a hobby. They get professional help with the complex stuff, they think strategically about their whole portfolio, and they start early.

Your future self will thank you for getting this right the first time.

Book Your Strategy Call

Frequently Asked Questions

Do I need to file taxes in both Canada and the US if I own US rental property?

Yes. You'll file US federal tax returns (and state returns in most states) on your rental income. You'll also report that same income on your Canadian tax return. However, you typically receive a foreign tax credit for taxes paid in the US, so you're not actually paying double tax on the same income.

Should I set up an LLC to hold my US rental properties?

Be careful with LLCs as a Canadian. While US advisors commonly recommend them, Canada doesn't recognize LLCs the same way the US does. This creates timing mismatches that can prevent you from properly claiming foreign tax credits. Work with someone who understands both tax systems before choosing your structure.

Is it better to own US rental properties personally or through a corporation?

For most Canadian investors, personal ownership works better because personal capital gains rates are more favorable than corporate rates in both countries. Most real estate tax comes from the sale, not annual rental income. Annual income can often be reduced through depreciation and mortgage interest anyway.

Can I use equity from existing properties to buy more rental properties?

Yes. Once you own several properties, you can use them as collateral for DSCR loans (Debt Service Coverage Ratio loans). These loans are based on the property's rental income rather than your personal income, and they let you access equity to fund new purchases without saving for each down payment.

Do I need a US will if I own rental properties in the United States?

Yes, you should create a local will in the state where you own property. Your Canadian will might not be sufficient for US properties, and this can create probate issues that delay your family's ability to manage or sell those assets. The local will doesn't have to be complicated, but it needs to exist.

Which US states are best for Canadian real estate investors?

States with no income tax like Texas, Florida, and Wyoming are popular because you only file federal returns, not state returns. However, these states often have higher property taxes to compensate. The best state depends on your investment goals, whether you want appreciation or cash flow, and your overall tax situation.

What's the difference between property management and asset management?

Property management handles day-to-day operations like tenant relations, maintenance, and rent collection. Asset management is strategic oversight of your entire portfolio – making decisions about refinancing, rent optimization, which properties to sell or keep, and coordinating strategy across all your properties.

Should I use my regular Canadian accountant for US rental properties?

You need someone who understands both Canadian and US tax systems. This could be a US accountant with Canadian knowledge or a Canadian accountant with cross-border expertise. Using an accountant who only knows one system will likely cost you money through missed opportunities or improper structures.

Disclaimer: LendCity Mortgages is a licensed mortgage brokerage, and our team includes experienced real estate investors. While we are qualified to provide mortgage-related guidance, the broader financial, tax, and legal information in this article is provided for educational purposes only and does not constitute financial planning, tax, or legal advice. For matters outside mortgage financing, we recommend consulting a Chartered Professional Accountant (CPA), licensed financial planner, or qualified legal advisor.

Written by

LendCity

Published

December 22, 2025

Buy Rental Properties in the US: Tax-Smart Guide for Canadians