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My question is about taxation of capital gains on equities,

Hello, My question is about taxation...
Hello,
My question is about taxation of capital gains on equities, like stocks, options, futures of F1 students.
Here the facts:1. F1 student for 4 years in the US2. student does not get any income within the US, no scholarships, no employment income etc3. students only income is from capital gains tax of trading stocks and other equities4. The student is more than 183 days in the US within a calendar year5. Student rents a house while being in the US, but owns an apartment in his country where he usually lives, besides that has bank account and lots of personal belongings left in his country.Question:Did the tax home of the student move to the US, because his University course is 4 years long and therefore his capital gains are taxed at the 30% rate?Or did his tax home NOT move to the US, because the student does not get any money from employment etc within the US and therefore his capital gains are not considered US source income and are tax free?I know about tax treaties etc, the only question is, did the tax home move to the US, so does he need to pay the 30% tax for capital gains or not?Thanks a lot!Edit your question
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Answered in 29 minutes by:
12/12/2017
Chad EA, CFP ®
Chad EA, CFP ®, Enrolled Agent
Category: Tax
Satisfied Customers: 1,442
Experience: Federally licensed IRS Enrolled Agent, Certified Financial Planner (R), MBA
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Hello, my name is ***** ***** I will be able to assist you today.

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.

___

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.

___

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.

___

You may verify this information using the IRS.Gov link below.

https://www.irs.gov/individuals/international-taxpayers/the-taxation-of-capital-gains-of-nonresident-alien-students-scholars-and-employees-of-foreign-governments

Nonresident aliens who are required to file an income tax return must use:

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If you do have any further questions please let me know.

At the conclusion of our conversation please take a moment to accept my answer by clicking on three stars or more. Thank you!
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Customer reply replied 2 months ago
Hello,
thanks...but what about this link?
https://www.irs.gov/individuals/international-taxpayers/nonresident-alien-students-and-the-tax-home-concept

Give me one moment to review please

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  1. A nonresident alien student temporarily present in the United States in F, J, M, or Q status who, at the time of his arrival in the United States, intends to remain in the United States for a period longer than 1 year, and who is the recipient of a U.S. source scholarship or fellowship has established his tax home in the United States beginning on the first date he is eligible to receive such scholarship or fellowship income if his eligibility to receive such scholarship or fellowship income is expected to last for a period longer than 1 year. The nonresident alien student shall be taxable on his U.S. source capital gains income in any calendar year in which his presence in the United States equals or exceeds 183 days.
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Customer reply replied 2 months ago
if he is longer than 1 year in the US "AND" receives us source scholarship or fellowship.

If the student is the US for over 183 days in 2017 then the capital gains are taxable in the US.

___

If the student isn't in the US for 183 days then the capital gains wouldn't be taxable in the US.

Regardless of the scholarship

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Customer reply replied 2 months ago
Why?
He doesn't have a tax home in the US.
Customer reply replied 2 months ago
A nonresident alien student temporarily present in the United States in any nonimmigrant status who is not employed (or self-employed even if illegally under the immigration law) and is not the recipient of a U.S. source scholarship or fellowship, has not established a tax home in the United States. The nonresident alien student shall not be taxable on his U.S. source capital gains income in any calendar year in which his presence in the United States does not equal or exceed 183 days.

What definition are you using for tax home?

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"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."

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Customer reply replied 2 months ago
34;in general". That means, most of the time, but not always.
And if it would mean "always", then the whole link with student tax home would not make sense.

If the student doesn't feel that they meet the definition of having a tax home in the US, then they wouldn't be taxed in the US on capital gains

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The link makes sense if the student stays in the US for less than 183 days

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Customer reply replied 2 months ago
No, because capital gains are only taxed if somebody is more than 183 days within the us. If EVERYBODY that is longer than 1 year in the us has to pay capital gains tax when more than 183 days in the us, the whole student and scholarship text would be unnecessary. Or not?

Here is the conclusion from the link

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.

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"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."

Unless your tax home has shifted to the US

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Customer reply replied 2 months ago
that is the conclusion from the one link, but the other link says:
The tax home of nonimmigrants temporarily present in the United States in F, J, M, or Q status, and who have U.S.-sourced scholarship/fellowship income, is in the United States if such nonimmigrants intend to remain in the United States for a period longer than 1 year.
If a foreign student has no employment or trade or business or activity in the United States and receives no scholarship or fellowship income, then he or she may have no U.S. tax home at all.
Customer reply replied 2 months ago
In my opinion that means, the one year rule only applies to students who receive employment money within the us...not right?

In the last paragraph the key phrase is "may have no U.S. tax home at all.

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This issue turns on whether or not the student has a tax home in the US.

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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.

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It is perfectly fine to have a differing of opinion, and you are free to file as you see justified.

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You are allowed to take your position as you have stated it and if necessary you are given a chance to explain you position.

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Customer reply replied 2 months ago
Hm...then let me ask it in this way:
Have you ever heard of students who filed capital gains as non is sourced income and then the IRS sued them because they said it was supposed to be us sourced income?

I suggest documenting the information that you believes entitles the student to not be subject to tax.

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No, I have not.

What would happen is that the brokerage firm would issue a 1099 to the student and the IRS. The IRS reviews the records to match up reported income.

The IRS may reach out to the student in a year or two to ask why they didn't report the income. At this time you would explain why you didn't report the income.

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The IRS generally proposes an income adjustment and then the student can dispute the adjustment and site the information you have provided.

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Customer reply replied 2 months ago
after reading the text from the link I sent to you, you would agree that I do NOT move my tax home to the us? Because there needs to be more than just the 1 year rule, right? "Generally " mainly belongs to us citizens moving within the us and is important for travel costs etc...right?

Generally, is a term used frequently in publications.

It is my opinion that a tax home shifts for capital gains, even for students, if they intend on staying in the US for over a year and it was stated that this student was here for four years.

However:

"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.

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Customer reply replied 2 months ago
Ok... thanks!

Good luck.

Again, I would save the links and take notes of your position, because if you are asked in the future it is good to have documented your research.

Chad EA, CFP ®
Chad EA, CFP ®, Enrolled Agent
Category: Tax
Satisfied Customers: 1,442
Experience: Federally licensed IRS Enrolled Agent, Certified Financial Planner (R), MBA
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