Form 1040-NR Explained: The U.S. Return for Nonresidents
Who files, the two kinds of U.S. income, the rental election, the deductions, and the deadline
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
Form 1040-NR is the U.S. return for nonresident aliens, including Canadians, with U.S. income to report: a U.S. business or rental, U.S. wages, over- or under-withheld U.S. income, or a property sale. It taxes effectively connected income at graduated rates on the net, and fixed or periodic income at a flat 30 percent or the treaty rate on the gross.
On this page
The two kinds of income
| Income | How it's taxed | Examples |
|---|---|---|
| Effectively connected with a U.S. trade or business | Graduated rates on net income, with deductions | U.S. business profits, U.S. wages, rental income with the net-basis election, gains on U.S. real estate |
| Fixed, determinable, annual, or periodic (not effectively connected) | Flat 30 percent (or treaty rate) on gross, usually withheld at source | Dividends, interest, royalties, pensions, rents without the election |
Who files
A nonresident who was engaged in a U.S. trade or business, has effectively connected income, owes tax not fully withheld, wants a refund of over-withholding (FIRPTA, rent withheld at 30 percent), claims treaty benefits requiring a return, or sold U.S. real estate. A nonresident whose only U.S. income was dividends correctly withheld at the treaty rate generally needn't file.
The rental election
A Canadian with U.S. rental property can elect under section 871(d) to treat the rental as effectively connected — taxed on the net after expenses and depreciation instead of 30 percent of gross rent — by attaching an election statement to the first Form 1040-NR, giving the property manager Form W-8ECI and filing Form 1040-NR every year (the snowbird guide). The election is nearly always worth making.
Deductions and limits
Nonresidents deduct only expenses connected with effectively connected income, plus a few itemized deductions (state and local income taxes within the SALT cap, charitable contributions to U.S. organizations, casualty and theft losses); they can't take the standard deduction (students and business apprentices from India excepted, under that treaty), can't file jointly, and get no personal exemption — the exemption amount is zero, permanently under P.L. 119-21. The treaty's charitable rule for Canadian residents (Article XXI(7)) works on the Canadian return: gifts to U.S. charities earn Canadian credit up to a limit computed on U.S.-source income.
Deadline
April 15 if the nonresident had wages subject to U.S. withholding; otherwise June 15. Form 4868 extends either deadline by six months — to October 15 or December 15.
Frequently asked questions
Do Canadians need to file a U.S. tax return?
Only if they have U.S. income that requires one — a U.S. business, U.S. wages, a rental (with the net-basis election), a U.S. property sale, or over-withheld tax to recover.
What is effectively connected income?
Income connected with a U.S. trade or business — taxed on the net at graduated rates on Form 1040-NR.
Should I make the rental election?
Almost always — tax on net rental income is far lower than 30 percent of gross rent.
When is Form 1040-NR due?
June 15 for most Canadians without U.S. wages; April 15 if they had U.S. wages with withholding.
Official sources
The IRS explains: “You may need to file Form 1040-NR if you: Were a nonresident alien engaged in a trade or business in the United States.” — Internal Revenue Service, About Form 1040-NR, U.S. Nonresident Alien Income Tax Return, https://www.irs.gov/forms-pubs/about-form-1040-nr
Next step
Fairlight Accounting is a cross-border accounting and tax practice with a U.S. Tax Desk and a Canadian Tax Desk. Our U.S. Tax Desk and Canadian Tax Desk handle Form 1040-NR preparation for Canadians — effectively connected income, section 871(d) rental elections, treaty claims, FIRPTA sale-year returns, and refunds of over-withheld tax. See pricing or book a call.
Cross-border taxes, handled in one place
U.S. and Canadian filings prepared together by our U.S. and Canadian Tax Desks.
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