More Canadians are buying rental properties in the United States. And it makes sense why. Ontario’s landlord-tenant board can take over a year to evict a problem tenant. Meanwhile, landlord-friendly states like Texas can complete the same process in about three weeks.
But jumping into U.S. real estate without the right structure can cost you thousands in unnecessary taxes. Here’s what you need to know before you buy.
Why Ontario Investors Are Looking South
Two main reasons are driving this trend:
First, the landlord-tenant board makes removing problem tenants nearly impossible. Even after winning your case, the process drags on. Police won’t help enforce evictions. You’re often stuck paying tenants to leave—which shouldn’t be how things work.
Second, U.S. properties offer better entry points. You can find cash-flowing properties starting around $200,000. Compare that to the Greater Toronto Area where you need serious capital just to get started.
Book Your Strategy CallStart With Your Investment Goals
Before setting up any corporate structure, ask yourself: what’s your goal?
Buying one or two properties mostly for personal use with some rental income? You probably don’t need a complex structure.
Building a real estate business with multiple rental properties and planning to reinvest U.S. income? You need proper corporate setup. This protects your assets and saves you from double taxation.
The Triple C Structure Explained
This three-layer approach is what serious Canadian investors need. Here’s how it works:
Layer 1: Canadian Corporation
Start with a numbered Ontario corporation (or your home province). It doesn’t need a fancy name because nobody will see it. It’s just a holding entity. Setting this up takes about a week.
Layer 2: Wyoming C Corporation
Your Canadian corporation owns a C Corporation in Wyoming. Why Wyoming?
- Zero corporate income tax
- Zero personal income tax
- Low registration fees (hundreds, not thousands)
- Fast setup (2-3 days when things go smoothly)
- Strong privacy protections
- Asset protection through charging order laws
If you don’t distribute money from your Wyoming corporation, creditors can’t penetrate it to grab your assets. They can only intercept distributions when money actually leaves the company.
Layer 3: The LLC
The LLC actually holds title to your property. Your Wyoming C Corporation owns this LLC.
Buying in Florida? Set up a Florida LLC. This LLC is a “disregarded entity” that flows income to your Wyoming C Corporation. You only file one U.S. tax return—for the Wyoming corporation.
Why You Can’t Skip the C Corporation
Some investors think they can just use an LLC and save money. Bad idea.
If you own an LLC directly as a Canadian, the Canada Revenue Agency won’t let you claim foreign tax credits on your personal return. They see those as corporate tax credits from a corporate entity. This creates a mismatch that gets rejected.
The result? Double taxation or worse.
The C Corporation solves this problem. It sits between you and the LLC, keeping everything aligned properly.
Multiple Properties Need Multiple LLCs
You want separate LLCs to protect your assets. A lawsuit against one property shouldn’t threaten your whole portfolio.
The general rule: once properties in a single LLC total $500,000 to $1,000,000 in value, create another LLC for new acquisitions.
Ten separate single-family homes carry less risk than one ten-unit apartment building. Spreading tenants across different properties and different legal entities protects you better.
What About Different States?
You don’t need a new LLC for each state. If you have a Florida LLC and buy in Ohio, you can use the same Florida LLC. Just register it in Ohio as a “foreign corporation”—a simple process costing $100-300.
Timing Is Critical: Set Up Before You Buy
Here’s a mistake that costs investors deals: waiting to find a property before setting up entities.
The problem? You need an Employer Identification Number (EIN) from the IRS. Even with no employees, you need this number. And you can’t open a U.S. bank account without it.
How long does the IRS take? Two to three weeks normally. But during tax season (March through May)? Two to four months.
Imagine finding the perfect property but losing it because you’re waiting for the IRS. Set up your structure first if you’re committed to investing.
The timeline looks like this:
- Canadian corporation: about 1 week
- Wyoming C Corporation and LLC: about 2 weeks
- EIN from IRS: 2-3 weeks minimum (possibly months)
The Biggest Mistakes to Avoid
Taking Title in Your Personal Name
This is the worst mistake. Buying rental property in your personal name seems simpler, but moving it to an LLC later triggers capital gains tax.
One investor bought in a Florida growth area. One year later, the property appreciated over $100,000. Moving it to an LLC would have triggered tax on half that gain—a massive unnecessary bill.
Always set up the LLC first. Take title in the LLC name from day one.
Missing Information Returns
The U.S. system requires various information returns that don’t involve taxes but are mandatory anyway. Miss one and you might get a $10,000 demand letter from the IRS.
Even if your accountant filed everything correctly, the IRS might send automated demands anyway. Their left hand doesn’t always know what the right hand is doing.
This is why you need professionals who understand both Canadian and U.S. requirements.
Picking the Right State
Before looking at taxes or appreciation, check one thing first: Is the state landlord-friendly?
Avoid these tenant-friendly states:
- California
- New York
- New Jersey
These states mirror Ontario’s problems. Evictions take a year or more.
Popular landlord-friendly states include:
- Texas (evictions in 3 weeks)
- Florida
- Georgia
What About Taxes?
Federal corporate tax is 21% everywhere. State taxes range from 0% to about 12%.
Interestingly, the highest-tax states are the same ones that are tenant-friendly. So avoiding tenant-friendly states also means avoiding high state taxes.
Why Not Wyoming for Properties?
Wyoming has zero state income tax, so why not buy properties there?
Wyoming is the least populated state in the country. There’s no demand. Limited demand means limited appreciation and difficulty selling.
Wyoming works perfectly for your holding corporation. But buy your actual rental properties where people want to live.
Don’t Go It Alone
Setting up cross-border structures isn’t a DIY project. You need coordination between Canadian and U.S. professionals who understand both systems.
The cost of proper setup is tiny compared to the taxes and legal problems you’ll face without it.
As your portfolio grows, professional bookkeeping becomes essential too. Your strength is finding and funding properties. Let professionals handle the paperwork so you can focus on what you do best.
The Bottom Line
U.S. real estate offers real opportunities for Canadian investors frustrated with our tenant-friendly system. But success requires proper structure from day one.
Set up your entities before you start shopping for properties. Choose landlord-friendly states. Work with professionals who understand both tax systems. And never, ever take title in your personal name.
Get the structure right, and you can build a profitable U.S. portfolio while protecting your assets and minimizing your taxes.
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