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According to an answer on a previous question, buying a house in Canada if you are a US citizen is pretty straightforward.

But it doesn't address tax concerns in both countries - how are they handled?

Can mortgage interest or property tax paid in Canada be deducted from your US income taxes?

Does property ownership make you liable for other taxes in Canada?

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About deducting mortgage interest: No, you can not deduct it unless it is qualified mortgage interest. "Qualified mortgage interest is interest and points you pay on a loan secured by your main home or a second home." (Tax Topic 505). According to the IRS, "if you rent out the residence, you must use it for more than 14 days or more than 10% of the number of days you rent it out, whichever is longer."

Regarding being taxed on income received from the property, if you claim the foreign tax credit you will not be double taxed. According to the IRS, "The foreign tax credit intends to reduce the double tax burden that would otherwise arise when foreign source income is taxed by both the United States and the foreign country from which the income is derived." (from IRS Topic 856 - Foreign Tax Credit)

About property taxes: From my understanding, these cannot be claimed for the foreign tax credit but can be deducted as business expenses.

There are various exceptions and stipulations based on your circumstance, so you need to read the official publications and get professional tax advice. Here's an excerpt from Publication 856 - Foreign Tax Credit for Individuals: "In most cases, only foreign income taxes qualify for the foreign tax credit. Other taxes, such as foreign real and personal property taxes, do not qualify. But you may be able to deduct these other taxes even if you claim the foreign tax credit for foreign income taxes. In most cases, you can deduct these other taxes only if they are expenses incurred in a trade or business or in the production of in­come. However, you can deduct foreign real property taxes that are not trade or business ex­penses as an itemized deduction on Sched­ule A (Form 1040)."

Note and disclaimer:

  • This question refers to an answer that has since been updated. I included most of that update here.
  • Be sure to get professional advice from an accountant and a real estate agent. I am neither.

Sources: IRS Tax Topic 505 Interest Expense, IRS Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses) , IRS Topic 514 Foreign Tax Credit , and Publication 856 Foreign Tax Credit for Individuals

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