Investing in U.S. Stocks or Real Estate

Introduction
Understanding investing in U.S. stocks or real estate is essential for Canadians seeking growth opportunities across the border. The United States is one of the most attractive markets for Canadian investors — offering access to world-leading companies, favourable real estate prices, and high rental demand. But cross-border investments come with complex tax rules. U.S. stocks are subject to withholding tax, while U.S. real estate triggers special rules such as FIRPTA, state taxes, capital gains, rental income tax, and potential estate tax exposure. At the same time, Canada taxes worldwide income, creating another layer of obligations. Without proper planning, Canadian investors risk double taxation, penalties, incorrect filings, and major tax inefficiencies. This guide explains everything you need to know about investing in U.S. stocks or real estate.

Legal and Regulatory Framework
Investing in U.S. stocks or real estate is governed by the Income Tax Act, the U.S. Internal Revenue Code, FIRPTA real estate rules, IRS Form 1040NR filings, Form W-8BEN withholding rules, foreign tax credits under CRA, the Canada–U.S. Tax Treaty, Québec’s Taxation Act, and CRA foreign reporting rules including Form T1135 for foreign property. Cross-border investors must also comply with FATCA (U.S. asset reporting) and CRA worldwide-income requirements.

Investing in U.S. Stocks as a Canadian Resident
Canadian residents can freely invest in U.S. stocks through Canadian brokerages or U.S.-based accounts. However, all U.S. dividends are subject to a 15 percent withholding tax under the Treaty. This withholding tax is creditable in Canada through foreign tax credits. Capital gains from U.S. stocks are not taxed in the U.S. for Canadians and are taxable only in Canada. Canadians must declare all U.S. stock gains, dividends, and interest on the Canadian return.

Using TFSA, RRSP, and Non-Registered Accounts for U.S. Stocks
RRSPs are the most tax-efficient accounts for investing in U.S. stocks because the Treaty eliminates the 15 percent withholding tax on U.S. dividends. TFSAs do not receive Treaty benefits — U.S. dividends inside a TFSA are still subject to withholding and cannot be recovered. Non-registered accounts allow foreign tax credit claims, but income and gains remain taxable to CRA. Québec residents must also declare U.S. income on TP-1.

Currency Exchange Rules for U.S. Investments
When investing in U.S. stocks or real estate, foreign exchange must be tracked accurately. Capital gains must be reported in Canadian dollars using the FX rate at purchase and sale. Canadians often neglect currency adjustments, leading to incorrect capital gains reporting.

T1135 Reporting for U.S. Stocks
If the total cost of foreign property exceeds $100,000 CAD, investors must file T1135. U.S. stocks held in taxable accounts count toward the threshold. RRSPs and TFSAs are excluded, but non-registered U.S. holdings must be reported.

Investing in U.S. Real Estate as a Canadian Resident
U.S. real estate is fully taxable in both the U.S. and Canada. Rental income is first taxed in the U.S. and then must be reported in Canada. Real estate investors must choose between gross withholding (30 percent of rents withheld) or the net rental election (Form W-8ECI). FIRPTA applies when Canadians sell U.S. real estate — requiring buyers to withhold 15 percent of the sale price. Canada then taxes the gain again, with foreign tax credits allowed.

U.S. Rental Income for Canadians
Rental income is taxed in the U.S. through IRS Form 1040NR. Under the net rental election, Canadians can deduct expenses including mortgage interest, repairs, insurance, property taxes, depreciation, and travel. This reduces U.S. tax significantly. The same net rental income must be reported in Canada, with foreign tax credits applied. Québec residents must also report rental income on TP-1 and claim provincial foreign tax credits.

Selling U.S. Real Estate — FIRPTA Rules
FIRPTA requires that 15 percent of the selling price (not profit) be withheld when a non-resident sells U.S. property. Canadians must file IRS Form 1040NR to claim back overpayments. Capital gains are taxed in the U.S. first and then in Canada. Foreign tax credits reduce double taxation. Correct FIRPTA planning can prevent excessive withholding.

U.S. Estate Tax Exposure for Canadian Real Estate Investors
Canadians who invest in U.S. real estate or U.S. stock portfolios may face U.S. estate tax based on worldwide wealth thresholds. Although the Treaty provides credits that help Canadians reduce exposure, large estates may still face U.S. estate tax. Proper structuring — such as corporations, partnerships, or trusts — requires careful planning because incorrect structures can create worse tax outcomes in Canada.

Structuring U.S. Real Estate Ownership
Ownership options include personal ownership, Canadian corporations, U.S. LLCs, U.S. LPs, and cross-border trusts. However, each structure carries significant tax implications. LLCs are generally not recommended for Canadians because Canada does not recognize LLC flow-through treatment, causing double taxation. U.S. LPs and Canadian corporations may be used in planning but must be evaluated carefully.

Mortgage Interest Deductibility
U.S. rental properties allow mortgage interest as a deduction for both U.S. and Canadian tax purposes. FX conversion must be applied correctly. Property taxes, depreciation, repairs, insurance, and utilities are deductible. Travel from Canada to inspect the property may also be deductible under IRS rules.

Québec-Specific Considerations
Québec residents investing in U.S. stocks or real estate must file TP-1 with foreign income reporting and claim provincial foreign tax credits. Québec applies strict FX rules and documentation requirements. T1135 filing remains federally required even for Québec residents.

Common Mistakes When Investing in U.S. Stocks or Real Estate
Common errors include failing to file T1135, ignoring FIRPTA, using U.S. LLCs improperly, assuming TFSA protection applies, misunderstanding capital gains rules, failing to file 1040NR for rental income, forgetting foreign tax credits, miscalculating currency conversion, failing to track depreciation, and investing without considering estate tax exposure.

Key Court Decisions
Courts confirm that Canadians selling U.S. property must comply with FIRPTA regardless of intent. Courts also support IRS and CRA authority on residency and foreign investment disclosure. Case law emphasizes strict T1135 compliance and accurate foreign tax credit calculations.

Why CRA and IRS Audit Cross-Border Investors
Audit triggers include unreported rental income, foreign brokerage statements, mismatched T1135 filings, FIRPTA irregularities, missing 1040NR filings, incorrect FX reporting, and participation in U.S. LLCs. CRA also audits crypto held on foreign exchanges, which counts as foreign property.

Mackisen Strategy
Mackisen CPA provides complete cross-border investment planning and compliance. We prepare T1135 foreign reporting, IRS 1040NR filings, FIRPTA certificates, foreign tax credits, U.S. rental income schedules, capital gains calculations, FX tracking, and Québec provincial reporting. We also structure cross-border real estate ownership to minimize tax and estate exposure while ensuring CRA and IRS compliance.

Real Client Experience
A Montréal investor with a Florida rental failed to file 1040NR and faced IRS penalties; Mackisen corrected filings and recovered withheld tax. A Toronto investor with large U.S. stock holdings exceeded the T1135 threshold; we prepared detailed foreign reporting. Another client sold a U.S. condo and had 15 percent FIRPTA withheld; we recovered most of the funds. A Québec client held crypto on Binance and needed foreign-property reporting; Mackisen filed a compliant T1135.

Common Questions
Do Canadians pay U.S. tax on U.S. stocks? Only on dividends, not capital gains.
Is FIRPTA mandatory when selling U.S. real estate? Yes — withholding applies to all non-residents.
Do I need to file 1040NR for U.S. rental income? Yes if you elect net rental treatment.
Does Québec handle foreign tax credits separately? Yes — provincial credit must be calculated.
Are LLCs good for Canadians? Usually no — double taxation risk.
Do I need to file T1135? Yes if foreign assets exceed $100,000 cost base.

Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps Canadians investing in U.S. stocks or real estate avoid double taxation, stay compliant with CRA and IRS rules, optimize returns, and plan cross-border wealth strategically. Whether managing FIRPTA filings, foreign reporting, FX tracking, or cross-border estate planning, our expert team provides precise, audit-proof solutions.