ARTICLE 4A, The Biggest Tax Mistakes Canadians Make When Buying U.S. Property (If You Only Read One Article, Read This, Call a Professional Cross-Border Tax Specialist)

Buying property in the United States as a Canadian is financially powerful, tax-efficient when done correctly, and often far more profitable than equivalent investments in Canada. But when it’s done incorrectly, the tax consequences can be severe: double taxation, exposure to U.S. estate tax, filing penalties, structure-based tax traps, and financing problems that could have been avoided with one early conversation.

Most Canadians do not make tax mistakes because they’re careless. They make them because the Canadian and U.S. tax systems behave differently, and because most Canadian accountants have little or no cross-border training.

This article summarizes the biggest and most common mistakes Canadians make, the mistakes that cross-border specialists see every week and that cost investors thousands of dollars in corrections, penalties, or lost financing opportunities.

This is not tax advice. This is the pattern recognition that comes from seeing hundreds of Canadian files. If even one of these applies to you, call a cross-border tax specialist immediately.

1. Buying U.S. property under an LLC (the single most expensive mistake Canadians make)

This is the tax disaster we see more than any other.

Why Canadians think LLCs are a good idea

In the U.S., realtors, title companies, and lawyers routinely recommend LLC ownership because: • liability protection • estate planning benefits • privacy • flow-through taxation (for Americans)

But for Canadians, an LLC is a tax trap

Under Canadian tax law, an LLC is classified as a corporation, not a flow-through entity.

This creates: • double taxation • lost tax credits • complex reporting requirements • inability to align filings between countries • expensive corrections • potential CRA scrutiny

The result

You pay U.S. tax and Canadian tax, often without credit harmonization.

The fix

A cross-border tax lawyer must unwind or restructure the ownership. This is possible, but expensive.

2. Not understanding U.S. estate tax exposure

Most Canadians have never dealt with an estate tax system. Canada has none.

The U.S., however, has: • a federal estate tax • state-level estate tax in some jurisdictions • complex valuation rules

A Canadian owning U.S. real estate may be exposed, depending on: • asset value • global estate size • treaty interpretation • ownership structure

Specialists must evaluate this early to avoid: • tax exposure • forced sales • liquidity problems

Ignoring estate tax is one of the most dangerous mistakes Canadians make.

3. Not filing U.S. tax returns when renting a U.S. property

If a U.S. property generates rental income, the IRS expects a filing, even if: • income is low • property is new • property runs at a loss • you are already filing in Canada

If you do not file: • penalties apply • lenders may decline future refinances • you may lose the ability to claim expenses retroactively • cross-border reporting becomes messy

And in the U.S., late filings can be more expensive than the tax owed.

4. Failing to obtain an ITIN on time

An ITIN is an IRS tax identification number.

You need an ITIN for: • U.S. tax filing • FIRPTA withholding • mortgage underwriting (in many cases) • certain banking operations • property management reporting

Many Canadians buy U.S. property and don’t obtain an ITIN, then discover months later that: • they can’t file • they can’t refinance • they can’t close a sale without 15 percent FIRPTA holdback

ITIN delays can take months. This often kills refinance timelines.

5. Incorrectly reporting U.S. rental income in Canada

Canadian filers must: • declare U.S. rental income • apply foreign tax credits • adjust for depreciation differences • follow Canadian reporting requirements

But many Canadian accountants: • misclassify U.S. rental income • fail to reconcile depreciation • miss state-level taxes • incorrectly apply foreign credits

This leads to: • CRA reassessments • unnecessary double tax • lender inconsistencies • future penalties

A cross-border accountant prevents this instantly.

6. Not understanding FIRPTA (15 percent withholding on sale)

When a Canadian sells U.S. property, the IRS requires: 15% withholding of the sale price, not the gain.

Canadians often learn this at closing, a terrible surprise.

To reduce or eliminate FIRPTA withholding, specialists must file: • Form 8288-B • supporting documentation • treaty interpretation

This process should start before listing the property.

7. Financing mistakes caused by tax mistakes

U.S. lenders require: • clean documentation • structured income • predictable banking flows • proper tax compliance (when applicable)

Tax mistakes can cause: • lender refusing to use rental income • inability to prove continuity of income • DSCR shortfalls • delays in underwriting • failed refinances • higher rates

• need to stay in hard money longer

Financing and tax compliance are interconnected.

8. Using Canadian entities without confirming U.S. tax compatibility

We often see: • Canadian corporations • Canadian partnerships • personal trusts • holding companies

While these can work, they must be structured correctly to avoid: • additional tax layers • state franchise taxes • incompatible reporting obligations • inability to refinance with U.S. lenders

Every structure must be reviewed by a cross-border specialist. Not a general accountant.

9. Not planning for state-level taxes

Canadians often assume U.S. taxes are “only federal.”

Incorrect.

Many states have: • income taxes • property taxes • lodging taxes (for STRs) • sales taxes • franchise taxes • tourist development taxes

Failure to understand state-level obligations results in: • non-compliance • fines • lender issues • incorrect filings

10. Not recognizing when you MUST call a cross-border specialist

Here are the triggers we see weekly:

Call a specialist immediately if:

• you already bought under an LLC • you bought under a Canadian corporation • you haven’t filed U.S. rental income • you don’t have an ITIN

• you plan to sell a U.S. property • you want to refinance using rental income • you want to buy multiple U.S. rentals • you plan STR operations in the U.S. • you are unsure about estate tax exposure

These are not DIY scenarios.

11. The Bottom Line (and the Whole Point of This Article)

Cross-border tax issues are not intuitive. They are not “common sense.” They do not behave like Canadian tax rules.

One wrong turn early, especially an LLC, can cost tens of thousands of dollars to unwind.

If you only read one article in this entire series, let it be this one:

Before you buy, refinance, restructure, or sell U.S. property as a Canadian, call a cross-border tax specialist.

It is the cheapest and most valuable hour you will ever spend in cross-border real estate.