The capital gains income of nonresident alien students, scholars and employees of foreign governments and international organizations may be taxed in a different way than the capital gains income of other nonresident aliens. The following discussion assumes that the capital gains in question are not effectively connected with the conduct of a trade or business in the United States. Most foreign students, foreign scholars, and alien employees of foreign governments and of international organizations in the United States are considered to be "exempt individuals." That is, they are exempt for extended periods of time from counting days of presence in the United States for the purposes of determining whether they are resident aliens of the United States. Thus, most foreign students, foreign scholars, and the alien employees of foreign governments and of international organizations in the United States remain nonresidents in the United States for extended periods of time. A flat tax of 30 percent (or lower treaty) rate is imposed on U.S. source capital gains in the hands of nonresident individuals present in the United States for 183 days or more during the taxable year. This 183-day rule bears no relation to the 183-day rule under the substantial presence test of IRC section 7701(b)(3). This rule applies even if any of the transactions occurred while you were not in the United States. For example, a foreign diplomat, consular officer, or other nonresident employee of a foreign government, or nonresident employee of an international organization, who is visiting the United States in A or G nonimmigrant status for a period longer than 183 days in a calendar year would be subject to the 30 percent tax on his/her U.S. source capital gains - even if he/she continues to be a nonresident per the “exempt individual” rules under the substantial presence test. The same rule applies to a foreign student or scholar visiting the United States in F, J, M, or Q nonimmigrant status whose presence in the United States equals or exceeds 183 days in any calendar year. Gain or loss from the sale or exchange of personal property generally has its source in the United States if the nonresident has a tax home in the United States. The key factor in determining if an individual is a U.S. resident for purposes of the sourcing of capital gains is whether the individual’s "tax home" has shifted to the United States. If a nonresident does not have a tax home in the United States, then the nonresident’s U.S. source capital gains would be treated as foreign-source and thus nontaxable. In general, under the "tax home" rules, a person who is away (or who intends to be away) from his tax home for longer than 1 year has shifted tax homes to his new location upon his arrival in that new location. See Chapter 1 of Publication 463, Travel, Entertainment, Gift, and Car Expenses. Thus, under this rule, most foreign students and scholars and most nonresident employees of foreign governments and of international organizations have shifted tax homes to the United States on the day of their arrival in the United States - unless the particular program or employment which brings them to the United States clearly terminates in less than one year and they have no intention to remain in the United States after the termination of such program or employment. Conclusion Nonresident students and scholars and nonresident employees of foreign governments and international organizations who, at the time of their arrival in the United States, intend to reside in the United States for longer than 1 year are subject to the 30 percent taxation on their capital gains during any tax year (usually calendar year) in which they are present in the United States for 183 days or more, unless a tax treaty provides for a lesser rate of taxation. This assumes that such capital gains are not effectively connected with the conduct of a United States trade or business. These capital gains would be reported on Form 1040-NR (Schedule NEC), Tax on Income Not Effectively Connected with a U.S. Trade or Business PDF and would not be reported on a Schedule D because they are being taxed at a flat rate of 30 percent or at a reduced flat rate under a tax treaty. Related Foreign students and scholars, teachers, researchers and exchange visitors Taxation of nonresident aliens Publication 463, Travel, Entertainment, Gift, and Car Expenses Publication 519, U.S. Tax Guide for Aliens Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court cases filed on or after May 1, 1986, visit the Opinions Search page of the United States Tax Court.
