Will I pay Capital Gains Tax in the US as a nonresident?
(Updated for 2024)
Capital gains tax (CGT) is a tax imposed on profit earned from the sale of specific assets.
For nonresident aliens, these assets often include investments like stocks, real estate, cryptocurrency and personal property.
So, while living in the US, you may be subject to capital gains tax when you sell these assets and earn a profit.
Many nonresidents in the US find it challenging to manage their CGT responsibilities. That’s why we’ve put together this guide which will outline everything you need to know to correctly file your capital gains tax return before the deadline.
How much capital gains tax will I pay in the USA as a nonresident?
The typical rate of US Capital Gains Tax is 30% for US-source net capital gains if you are in the US for 183 days or more of a tax year.
If you are living abroad during the whole tax year and invest in US stocks, you won’t pay CGT in the US but you may need to pay it in your home country.
However, exactly how much tax you will be required to pay will depend on a number of factors, including:
Tax Treaties
This is relevant to you if you are not exempt from US tax. Many countries have tax treaties with the US that can affect your tax liability. These treaties may reduce or eliminate CGT, depending on your residency status at the time of sale as well as the type of asset.
Income level
Your overall income, including income from your assets, can affect your tax rate. People with higher incomes may face higher tax rates.
State laws and regulations
Laws generally vary from state-to-state, and some states impose additional taxes on capital gains. It’s important for you to consider both federal and state tax implications.
Duration of stay
Capital gains income is not usually taxable for nonresidents who have been present in the US for less than 183 days in a calendar year. However, it is taxable when the presence is 183 or more days.
Do foreigners pay capital gains tax on US stocks or shares?
Investing in the US can be lucrative, but like any other form of income, it comes with tax implications for nonresident aliens.
When you sell investments such as stocks, bonds, or interest-bearing securities, you may have to pay CGT.
As mentioned above, exactly how long you stay in the US can influence your tax responsibilities.
You will be charged a rate of 30% if you have been in the US for 183 days or more or you did not provide the necessary tax forms (W-8Ben) to identify yourself as a foreign person eligible to use tax treaty..
However, you may be charged CGT on this income in your home country, so it is worth analyzing the tax rules around such investments here.
This is why investing in US stocks and shares is seen as lucrative, because if you did not meet the duration requirements, it is likely you’ll pay no tax on any of your investments.
Is interest income or capital gains?
If you find that you have received interest on any income, you may be confused as to what area of taxation it falls under.
Most interest income, however, is considered to be ordinary income when you’re filing a tax return, so it will be taxed at the regular rate.
Do I pay Medicare tax on capital gains?
Nonresident aliens are generally not subject to Medicare tax on their capital gains.
Medicare tax primarily applies to US citizens, resident aliens, and certain nonresident aliens who meet specific criteria.
Passive income is also not subject to CGT.
However, it’s essential to seek professional advice to ensure compliance with tax regulations.
How to report capital gains on a tax return
It’s very important to correctly report all of your income (including income from capital gains) on your tax return.
Nonresident aliens typically use Form 1040NR to report their capital gains.
When it comes to property, Form 1042-S must be used for reporting and paying over tax withheld. You’ll need to use Income Codes 24, 25, and 26 on the Form 1042-S for transactions involving these entities.
It’s recommended to keep detailed records of your transactions in the case of an audit by the IRS.
If you’re confused about any part of the process you can always consult with a tax agent like Sprintax!
File form 1040-NR online with Sprintax Returns
Do I pay state tax on capital gains?
The treatment of capital gains taxation at a state level generally differs from state to state.
Some states impose their own capital gains tax, while others do not.
It’s essential to research the tax regulations in the specific state where you have earned the profit in order to determine if state taxes apply.
As well as this, a few state income taxes are similar or the same as the capital gains tax rate.
In Pennsylvania, for example, income as well as capital gains tax is charged at a rate of 3.07%.
However, the state does not tax nonresidents any capital gains tax.
Who can help me to file my US capital gains tax return?
Understanding and complying with capital gains tax regulations as a nonresident alien in the US is essential to ensure you pay the correct amount of tax at the end of the tax year.
Sprintax has been developed specifically to guide nonresident individuals through the process of filing a US tax return.
Our software will prepare all of the paperwork you need to correctly file your CGT return with the IRS.
And the best part?
The process is fully automated and can be completed in one-sitting. And, if you need a hand from a member of the Sprintax team, we’re available 24/7 to support you.
Got tax questions? Contact the Sprintax Live Chat team anytime.
Prepare and file your nonresident alien tax return easily online with Sprintax
