US Tax Advice Wanted

Hi,

I am an Indian national moving to USA from Bahrain and needed help with a few tax related questions. Would be glad if anyone is able to provide some guidance or point me to online resources where i could get some more information on these topics:

1. Gifting - will i have to pay tax on cash gifts that i receive from family living outside of US?
2. Loans to Family - is it necessary to show interest income on loans provided to family even if loan was made on the condition that there are no definite repayment terms - i may not even receive the full principal back. If i write-off the loan today but receive some repayment later, will i have to consider the full amount as income?
3. Sale of property - i own an apartment in india which is valued more than the purchase price - if i sell this apartment after moving to US, will i have to pay capital gains tax on the full gain (sale price less purchase price) or does US allow for some cost adjustment based on inflation or similar parameter? Are there any options to offset the capital gains such as buying property in the US in the same year?
4. I am moving to US in August and have not been in the country during the last few years. Therefore i would not meet the substantial presence test for 2018. Therefore, is it correct to assume that in 2018 i would have to pay US taxes only on US sourced income (i.e. salary in US and any US investments) and i would not have to pay US taxes on foreign income earned after moving to US in August but before Dec 31, 2018 even if the income is credited to a US bank account?

Thank you in advance for your help.

Regards,

Rajat

Hi

First are you a Resident Alien or a Citizen of the USA?


Thanks

Hi jamesduraiswamy,

Im currently neither a resident alien nor a citizen of USA. As mentioned in the post im currently residing outside of US and i am an Indian citizen. As per my understanding i should be treated as a non resident alien in 2018 (see question 4) and only in 2019 I will become a resident alien....?

Thanks.

You should look at the IRS website www.irs.gov for details about most of these subjects.

Gifts from family can be considered non-income and are not taxed up to 14,000 dollars per recipient per year with a life time allowance of USD 5,250,000. Like federal inheritance taxes, the amounts are ridiculously high so that only large amounts really get taxed. More information about the federal inheritance and gift taxes: https://en.wikipedia.org/wiki/Estate_ta … ted_States

All income from loans is required to be declared. That a loan might not get repaid is irrelevant. This is like any loan or investment; if it is later not paid back or worthless then one can report a capital loss then. But beforehand, one does not get to speculate non-payment and simply write off something that might not happen.

Gains made on property that is your primary residence are not taxed. Other property, yes, the selling price minus the purchase price plus any provable improvements or associated costs.

You should not have to pay US income tax on any foreigner earned income before you actually take up residency in the US – assuming you are a non-US person for tax purposes. Every American citizen and also foreigners who works and /or resides in America (resident alien) is considered a US person. Your post says you are Indian but it also sounds like you might have previously lived or worked in the US?

The question is if you were in the US previously and seen as a US person for IRS tax purposes, if this status was ended when you left the States? It depends on various factors. If you worked in the States previously and the IRS sees your work elsewhere the lasts years as temporary, then they could try to tax all of the foreign earned income during that time. But unless you made a lot, there would be the possibility to lower or even eliminate any tax liability for such a time period by taking foreign earned income exclusion or foreign tax credits.

Anyway, after the time you arrive in the US, you mention August, then you have to declare and pay tax on all income earned worldwide. This includes anything earned in India or Bahrain or elsewhere also from August until the end of 2018 and beyond.

Thanks TominStuttgart for your comments!

I looked up the IRS website but could not locate information on Gifts from foreigners. The gift tax limit of USD 14k is the limit for the person making the gift to a specific recipient but as i understand it, the recipient could receive an amount higher than USD 14k - the tax liability rests with the person making the gift. If the person making the gift is not paying US taxes, how is that treated?

And i have not worked in US previously - i've only been to the US once in my life for a business trip for a month so there is no basis for IRS to tax my income prior to moving to the US. But i'm not sure about your comment on paying taxes on worldwide income from August onwards in 2018 - if i'm in the country for less than 183 in 2018, wouldn't i be deemed a non-resident alien and therefore i would have to pay taxes on only US sourced income? If i have to pay taxes on worldwide income, what is the purpose of the non-resident alien classification?
https://www.irs.gov/individuals/interna … sence-test
https://www.irs.gov/individuals/interna … ent-aliens

Thanks.

Your original post says you are moving to the States, not going for a limited time. Thus it sounds like you are going to be a resident alien – which will start at the time you arrive and not at the beginning of the coming year. If you are going to be working in the States for a specific  limited time then you might come under the label of being a non-resident alien and thus not have to pay tax on income except earned in the States during this period. The purpose of the non-resident alien status is for people staying a short enough period of time to be considered a non-resident. But you are not leaving at the end of the year! You do not get non-resident status until the end of the year and then resident status afterwards, that’s not how it works.

I already provided a link that gave specific information about gifts. Where the gift comes from, a foreigner or native is irrelevant. The tax due on any amounts over the free limits will be paid by the receiver of the gift – not the giver. It will then be considered as if it were income but I don’t know off hand what tax rate would apply.

Hi

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 nonresident aliens in the United States for extended periods of time.

A flat tax of 30 percent was imposed on U.S. source capital gains in the hands of nonresident alien individuals physically 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).

For example, a foreign diplomat, consular officer, or other nonresident alien employee of a foreign government, or nonresident alien 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 alien 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 alien 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 alien's "tax home" has shifted to the United States. If an alien does not have a tax home in the United States, then the alien’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 alien 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 alien students and scholars and alien 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 page 4 (not page 1) of Form 1040NR 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..

Who Must File
If you are any of the following, you must file a return:

A nonresident alien individual engaged or considered to be engaged in a trade or business in the United States during the year.
However, if your only U.S. source income is wages in an amount less than the personal exemption amount (see Publication 501, Exemptions, Standard Deduction, and Filing Information), you are not required to file.
A nonresident alien individual who is not engaged in a trade or business in the United States and has U.S. income on which the tax liability was not satisfied by the withholding of tax at the source.
A representative or agent responsible for filing the return of an individual described in (1) or (2),
A fiduciary for a nonresident alien estate or trust, or
A resident or domestic fiduciary, or other person, charged with the care of the person or property of a nonresident individual may be required to file an income tax return for that individual and pay the tax (Refer to Treas. Reg. 1.6012-3(b)).

Hope this give some insight.

Best

jamesduraiswamy :

Hi

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 nonresident aliens in the United States for extended periods of time.

A flat tax of 30 percent was imposed on U.S. source capital gains in the hands of nonresident alien individuals physically 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).

For example, a foreign diplomat, consular officer, or other nonresident alien employee of a foreign government, or nonresident alien 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 alien 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 alien 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 alien's "tax home" has shifted to the United States. If an alien does not have a tax home in the United States, then the alien’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 alien 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 alien students and scholars and alien 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 page 4 (not page 1) of Form 1040NR 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..

Who Must File
If you are any of the following, you must file a return:

A nonresident alien individual engaged or considered to be engaged in a trade or business in the United States during the year.
However, if your only U.S. source income is wages in an amount less than the personal exemption amount (see Publication 501, Exemptions, Standard Deduction, and Filing Information), you are not required to file.
A nonresident alien individual who is not engaged in a trade or business in the United States and has U.S. income on which the tax liability was not satisfied by the withholding of tax at the source.
A representative or agent responsible for filing the return of an individual described in (1) or (2),
A fiduciary for a nonresident alien estate or trust, or
A resident or domestic fiduciary, or other person, charged with the care of the person or property of a nonresident individual may be required to file an income tax return for that individual and pay the tax (Refer to Treas. Reg. 1.6012-3(b)).

Hope this give some insight.

Best

What does any of this have to do with the OP question? He says he is going to work in the US – not be a student or any of the other classifications mentioned here. The other thing is that this refers to capital gains rather than income. He is asking about income tax liability. But yes, a foreign student can invest while studying in America - although working on a student visa is not allowed.

The only thing I see that could conceivably be relevant would be “if your only U.S. source income is wages in an amount less than the personal exemption amount (see Publication 501, Exemptions, Standard Deduction, and Filing Information), you are not required to file”. But this is unlikely if one is working full time.

What I see as the essential question is the actual status. The OP suggests that he will be considered a nonresident alien for the remainder of the year because of not being in the US long. This is tantamount to saying his status would be nonresident alien until the end of the year and only from the beginning of 2019 being seen as a resident alien. But like I mentioned before, this is not how it works. Such a nonresident alien status would only apply if he were then leaving by the end of the year. Since he is going for an unlimited time, his status will be resident alien upon arrival.

Hi TominStuttgart..thanks again for your response.

So i should clarify i will be on an L1A visa with a 3 year validity. So whilst I said I am moving to the USA,  at the moment i am only going for a limited time. It's not necessary that i stay for the full 3 years and it's also not necessary that i stay until the end of the year. Also, i may look at renewing the visa and/or applying for a Green Card in the future but at the moment, i'm going on an L1A.

Given the above information, would my status still be resident alien the moment i arrive in the US?

I believe that since i'm moving for a limited time, i would have to meet the substantial presence test every year in order to be treated as a resident alien in every year? In theory, i could stay in the country for a limited time each year and not meet the resident alien criteria?

Thanks!!

rajat5000 :

Hi TominStuttgart..thanks again for your response.

So i should clarify i will be on an L1A visa with a 3 year validity. So whilst I said I am moving to the USA,  at the moment i am only going for a limited time. It's not necessary that i stay for the full 3 years and it's also not necessary that i stay until the end of the year. Also, i may look at renewing the visa and/or applying for a Green Card in the future but at the moment, i'm going on an L1A.

Given the above information, would my status still be resident alien the moment i arrive in the US?

I believe that since i'm moving for a limited time, i would have to meet the substantial presence test every year in order to be treated as a resident alien in every year? In theory, i could stay in the country for a limited time each year and not meet the resident alien criteria?

Thanks!!

Sorry but to the best of my knowledge this is not how it works. To get a visa but still be a non-resident alien is dependent on certain conditions – like that one is only going to be there a specific time period and leave. Say you were going for a couple of weeks and definitely leaving - OK. That you are going for up to 3 years doesn’t qualify you – nor the idea that you might leave earlier or even go out of the States for part of the year – because you are still returning on the same visa. I’m not sure why you seem to have an obsession about qualifying to be a non-resident alien when you will in fact be a resident alien from time of your arrival. Your assertions sound like wishful thinking but are not supported by any of the rules or regulations I've read. I don’t care to comment anymore about this subject because I don’t see that you want to hear the truth. Anyone thinking they can somehow get around the rules or trick the immigration officials to their advantage is mistaken.

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