US Capital Gains

As a foreign person, as long as you do not reside in the US more than 183 days in the year any US Capital Gains you earn is exempt from tax. That on face value would seem a simple enough concept but unfortunately the US is not very user friendly for a foreign investor. Usually you get trapped into having a 30% tax withheld in the total value of the sale of securities, even if you lost money on the transaction. This can cause quite a cash flow problem as usually this can only be refunded by filing a US tax return which can result in a delay of months before you receive the refund of this tax. Capital gains for a foreign person should be reported on a 1042-s form but usually is reported on a 1099 form which is the tax form a US tax resident or citizen would use.

Another complication that arises is when the foreign person does not have an ITIN number, which is a taxpayer identification number used by the IRS. If you do not give your broker the ITIN number the IRS may not be able to identify the US Capital Gains tax paid on your behalf. When you file a US tax return to recoup your tax deducted, the IRS may not find that tax since you do not have an ITIN number associated with the tax paid on your behalf. It is for this reason that you should always get the ITIN number at the earliest opportunity as soon as you open a US investment account.

US Capital Gains can also be exempt under tax treaty even if you were in the US more than 183 days if you are considered a US non-resident for tax purposes. In this case you would file a treaty-based return to claim back your taxes. Even if you file a return correctly, because it is an unusual transaction, the IRS may make an error and assess your tax incorrectly. In this case you will need to appeal the result and present your case as to why the tax withheld is not taxable in the US.

Since tax treaty type returns are complex, usually a self-prepared return will result in an incorrect tax assessment and result in a battle of months or years to correct. This is why complex tax returns, such as described in this article, should be prepared by someone with experience in filing tax returns for non residents. Even US tax preparers and Accountants familiar with filing tax returns for US citizens living abroad will not usually have the experience in non resident type tax returns to accurately prepare the correct tax treaty position to get your tax back.

USA Tax Rebate deals exclusively with US non-resident tax situations. We can assist you in obtaining a US ITIN number as well as file a US Capital Gains return to reclaim the US withholding tax that was deducted in excess.

Below you will find a list of the type of services we provide.