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The H And R Free Tax

H and r free tax 4. H and r free tax   How Income of Aliens Is Taxed Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Resident Aliens Nonresident AliensTrade or Business in the United States Effectively Connected Income The 30% Tax Income From Real Property Transportation Tax Interrupted Period of Residence Expatriation TaxExpatriation Before June 4, 2004 Expatriation After June 3, 2004, and Before June 17, 2008 Expatriation After June 16, 2008 Introduction Resident and nonresident aliens are taxed in different ways. H and r free tax Resident aliens are generally taxed in the same way as U. H and r free tax S. H and r free tax citizens. H and r free tax Nonresident aliens are taxed based on the source of their income and whether or not their income is effectively connected with a U. H and r free tax S. H and r free tax trade or business. H and r free tax The following discussions will help you determine if income you receive during the tax year is effectively connected with a U. H and r free tax S. H and r free tax trade or business and how it is taxed. H and r free tax Topics - This chapter discusses: Income that is effectively connected with a U. H and r free tax S. H and r free tax trade or business. H and r free tax Income that is not effectively connected with a U. H and r free tax S. H and r free tax trade or business. H and r free tax Interrupted period of residence. H and r free tax Expatriation tax. H and r free tax Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 1212 List of Original Issue Discount Instruments Form (and Instructions) 6251 Alternative Minimum Tax—Individuals Schedule D (Form 1040) Capital Gains and Losses See chapter 12 for information about getting these publications and forms. H and r free tax Resident Aliens Resident aliens are generally taxed in the same way as U. H and r free tax S. H and r free tax citizens. H and r free tax This means that their worldwide income is subject to U. H and r free tax S. H and r free tax tax and must be reported on their U. H and r free tax S. H and r free tax tax return. H and r free tax Income of resident aliens is subject to the graduated tax rates that apply to U. H and r free tax S. H and r free tax citizens. H and r free tax Resident aliens use the Tax Table or Tax Computation Worksheets located in the Form 1040 instructions, which apply to U. H and r free tax S. H and r free tax citizens. H and r free tax Nonresident Aliens A nonresident alien's income that is subject to U. H and r free tax S. H and r free tax income tax must be divided into two categories: Income that is effectively connected with a trade or business in the United States, and Income that is not effectively connected with a trade or business in the United States (discussed under The 30% Tax, later). H and r free tax The difference between these two categories is that effectively connected income, after allowable deductions, is taxed at graduated rates. H and r free tax These are the same rates that apply to U. H and r free tax S. H and r free tax citizens and residents. H and r free tax Income that is not effectively connected is taxed at a flat 30% (or lower treaty) rate. H and r free tax If you were formerly a U. H and r free tax S. H and r free tax citizen or resident alien, these rules may not apply. H and r free tax See Expatriation Tax, later, in this chapter. H and r free tax Trade or Business in the United States Generally, you must be engaged in a trade or business during the tax year to be able to treat income received in that year as effectively connected with that trade or business. H and r free tax Whether you are engaged in a trade or business in the United States depends on the nature of your activities. H and r free tax The discussions that follow will help you determine whether you are engaged in a trade or business in the United States. H and r free tax Personal Services If you perform personal services in the United States at any time during the tax year, you usually are considered engaged in a trade or business in the United States. H and r free tax Certain compensation paid to a nonresident alien by a foreign employer is not included in gross income. H and r free tax For more information, see Services Performed for Foreign Employer in chapter 3. H and r free tax Other Trade or Business Activities Other examples of being engaged in a trade or business in the United States follow. H and r free tax Students and trainees. H and r free tax   You are considered engaged in a trade or business in the United States if you are temporarily present in the United States as a nonimmigrant under an “F,” “J,” “M,” or “Q” visa. H and r free tax A nonresident alien temporarily present in the United States under a “J” visa includes a nonresident alien individual admitted to the United States as an exchange visitor under the Mutual Educational and Cultural Exchange Act of 1961. H and r free tax The taxable part of any scholarship or fellowship grant that is U. H and r free tax S. H and r free tax source income is treated as effectively connected with a trade or business in the United States. H and r free tax Business operations. H and r free tax   If you own and operate a business in the United States selling services, products, or merchandise, you are, with certain exceptions, engaged in a trade or business in the United States. H and r free tax Partnerships. H and r free tax   If you are a member of a partnership that at any time during the tax year is engaged in a trade or business in the United States, you are considered to be engaged in a trade or business in the United States. H and r free tax Beneficiary of an estate or trust. H and r free tax   If you are the beneficiary of an estate or trust that is engaged in a trade or business in the United States, you are treated as being engaged in the same trade or business. H and r free tax Trading in stocks, securities, and commodities. H and r free tax   If your only U. H and r free tax S. H and r free tax business activity is trading in stocks, securities, or commodities (including hedging transactions) through a U. H and r free tax S. H and r free tax resident broker or other agent, you are not engaged in a trade or business in the United States. H and r free tax   For transactions in stocks or securities, this applies to any nonresident alien, including a dealer or broker in stocks and securities. H and r free tax   For transactions in commodities, this applies to commodities that are usually traded on an organized commodity exchange and to transactions that are usually carried out at such an exchange. H and r free tax   This discussion does not apply if you have a U. H and r free tax S. H and r free tax office or other fixed place of business at any time during the tax year through which, or by the direction of which, you carry out your transactions in stocks, securities, or commodities. H and r free tax Trading for a nonresident alien's own account. H and r free tax   You are not engaged in a trade or business in the United States if trading for your own account in stocks, securities, or commodities is your only U. H and r free tax S. H and r free tax business activity. H and r free tax This applies even if the trading takes place while you are present in the United States or is done by your employee or your broker or other agent. H and r free tax   This does not apply to trading for your own account if you are a dealer in stocks, securities, or commodities. H and r free tax This does not necessarily mean, however, that as a dealer you are considered to be engaged in a trade or business in the United States. H and r free tax Determine that based on the facts and circumstances in each case or under the rules given above in Trading in stocks, securities, and commodities . H and r free tax Effectively Connected Income If you are engaged in a U. H and r free tax S. H and r free tax trade or business, all income, gain, or loss for the tax year that you get from sources within the United States (other than certain investment income) is treated as effectively connected income. H and r free tax This applies whether or not there is any connection between the income and the trade or business being carried on in the United States during the tax year. H and r free tax Two tests, described next under Investment Income, determine whether certain items of investment income (such as interest, dividends, and royalties) are treated as effectively connected with that business. H and r free tax In limited circumstances, some kinds of foreign source income may be treated as effectively connected with a trade or business in the United States. H and r free tax For a discussion of these rules, see Foreign Income , later. H and r free tax Investment Income Investment income from U. H and r free tax S. H and r free tax sources that may or may not be treated as effectively connected with a U. H and r free tax S. H and r free tax trade or business generally falls into the following three categories. H and r free tax Fixed or determinable income (interest, dividends, rents, royalties, premiums, annuities, etc. H and r free tax ). H and r free tax Gains (some of which are considered capital gains) from the sale or exchange of the following types of property. H and r free tax Timber, coal, or domestic iron ore with a retained economic interest. H and r free tax Patents, copyrights, and similar property on which you receive contingent payments after October 4, 1966. H and r free tax Patents transferred before October 5, 1966. H and r free tax Original issue discount obligations. H and r free tax Capital gains (and losses). H and r free tax Use the two tests, described next, to determine whether an item of U. H and r free tax S. H and r free tax source income falling in one of the three categories above and received during the tax year is effectively connected with your U. H and r free tax S. H and r free tax trade or business. H and r free tax If the tests indicate that the item of income is effectively connected, you must include it with your other effectively connected income. H and r free tax If the item of income is not effectively connected, include it with all other income discussed under The 30% Tax later, in this chapter. H and r free tax Asset-use test. H and r free tax   This test usually applies to income that is not directly produced by trade or business activities. H and r free tax Under this test, if an item of income is from assets (property) used in, or held for use in, the trade or business in the United States, it is considered effectively connected. H and r free tax   An asset is used in, or held for use in, the trade or business in the United States if the asset is: Held for the principal purpose of promoting the conduct of a trade or business in the United States, Acquired and held in the ordinary course of the trade or business conducted in the United States (for example, an account receivable or note receivable arising from that trade or business), or Otherwise held to meet the present needs of the trade or business in the United States and not its anticipated future needs. H and r free tax Generally, stock of a corporation is not treated as an asset used in, or held for use in, a trade or business in the United States. H and r free tax Business-activities test. H and r free tax   This test usually applies when income, gain, or loss comes directly from the active conduct of the trade or business. H and r free tax The business-activities test is most important when: Dividends or interest are received by a dealer in stocks or securities, Royalties are received in the trade or business of licensing patents or similar property, or Service fees are earned by a servicing business. H and r free tax Under this test, if the conduct of the U. H and r free tax S. H and r free tax trade or business was a material factor in producing the income, the income is considered effectively connected. H and r free tax Personal Service Income You usually are engaged in a U. H and r free tax S. H and r free tax trade or business when you perform personal services in the United States. H and r free tax Personal service income you receive in a tax year in which you are engaged in a U. H and r free tax S. H and r free tax trade or business is effectively connected with a U. H and r free tax S. H and r free tax trade or business. H and r free tax Income received in a year other than the year you performed the services is also effectively connected if it would have been effectively connected if received in the year you performed the services. H and r free tax Personal service income includes wages, salaries, commissions, fees, per diem allowances, and employee allowances and bonuses. H and r free tax The income may be paid to you in the form of cash, services, or property. H and r free tax If you are engaged in a U. H and r free tax S. H and r free tax trade or business only because you perform personal services in the United States during the tax year, income and gains from assets, and gains and losses from the sale or exchange of capital assets are generally not effectively connected with your trade or business. H and r free tax However, if there is a direct economic relationship between your holding of the asset and your trade or business of performing personal services, the income, gain, or loss is effectively connected. H and r free tax Pensions. H and r free tax   If you were a nonresident alien engaged in a U. H and r free tax S. H and r free tax trade or business after 1986 because you performed personal services in the United States, and you later receive a pension or retirement pay attributable to these services, such payments are effectively connected income in each year you receive them. H and r free tax This is true whether or not you are engaged in a U. H and r free tax S. H and r free tax trade or business in the year you receive the retirement pay. H and r free tax Transportation Income Transportation income (defined in chapter 2) is effectively connected if you meet both of the following conditions. H and r free tax You had a fixed place of business in the United States involved in earning the income. H and r free tax At least 90% of your U. H and r free tax S. H and r free tax source transportation income is attributable to regularly scheduled transportation. H and r free tax “Fixed place of business” generally means a place, site, structure, or other similar facility through which you engage in a trade or business. H and r free tax “Regularly scheduled transportation” means that a ship or aircraft follows a published schedule with repeated sailings or flights at regular intervals between the same points for voyages or flights that begin or end in the United States. H and r free tax This definition applies to both scheduled and chartered air transportation. H and r free tax If you do not meet the two conditions above, the income is not effectively connected and is taxed at a 4% rate. H and r free tax See Transportation Tax, later, in this chapter. H and r free tax Business Profits and Losses and Sales Transactions All profits or losses from U. H and r free tax S. H and r free tax sources that are from the operation of a business in the United States are effectively connected with a trade or business in the United States. H and r free tax For example, profit from the sale in the United States of inventory property purchased either in this country or in a foreign country is effectively connected trade or business income. H and r free tax A share of U. H and r free tax S. H and r free tax source profits or losses of a partnership that is engaged in a trade or business in the United States is also effectively connected with a trade or business in the United States. H and r free tax Real Property Gain or Loss Gains and losses from the sale or exchange of U. H and r free tax S. H and r free tax real property interests (whether or not they are capital assets) are taxed as if you are engaged in a trade or business in the United States. H and r free tax You must treat the gain or loss as effectively connected with that trade or business. H and r free tax U. H and r free tax S. H and r free tax real property interest. H and r free tax   This is any interest in real property located in the United States or the U. H and r free tax S. H and r free tax Virgin Islands or any interest (other than as a creditor) in a domestic corporation that is a U. H and r free tax S. H and r free tax real property holding corporation. H and r free tax Real property includes the following. H and r free tax Land and unsevered natural products of the land, such as growing crops and timber, and mines, wells, and other natural deposits. H and r free tax Improvements on land, including buildings, other permanent structures, and their structural components. H and r free tax Personal property associated with the use of real property, such as equipment used in farming, mining, forestry, or construction or property used in lodging facilities or rented office space, unless the personal property is: Disposed of more than one year before or after the disposition of the real property, or Separately sold to persons unrelated either to the seller or to the buyer of the real property. H and r free tax U. H and r free tax S. H and r free tax real property holding corporation. H and r free tax   A corporation is a U. H and r free tax S. H and r free tax real property holding corporation if the fair market value of the corporation's U. H and r free tax S. H and r free tax real property interests are at least 50% of the total fair market value of: The corporation's U. H and r free tax S. H and r free tax real property interests, plus The corporation's interests in real property located outside the United States, plus The corporation's other assets that are used in, or held for use in, a trade or business. H and r free tax   Gain or loss on the sale of the stock in any domestic corporation is taxed as if you are engaged in a U. H and r free tax S. H and r free tax trade or business unless you establish that the corporation is not a U. H and r free tax S. H and r free tax real property holding corporation. H and r free tax   A U. H and r free tax S. H and r free tax real property interest does not include a class of stock of a corporation that is regularly traded on an established securities market, unless you hold more than 5% of the fair market value of that class of stock. H and r free tax An interest in a foreign corporation owning U. H and r free tax S. H and r free tax real property generally is not a U. H and r free tax S. H and r free tax real property interest unless the corporation chooses to be treated as a domestic corporation. H and r free tax Qualified investment entities. H and r free tax   Special rules apply to qualified investment entities (QIEs). H and r free tax A QIE is any real estate investment trust (REIT) or any regulated investment company (RIC) that is a U. H and r free tax S. H and r free tax real property holding corporation. H and r free tax    Generally, any distribution from a QIE to a shareholder that is attributable to gain from the sale or exchange of a U. H and r free tax S. H and r free tax real property interest is treated as a U. H and r free tax S. H and r free tax real property gain by the shareholder receiving the distribution. H and r free tax A distribution by a QIE on stock regularly traded on an established securities market in the United States is not treated as gain from the sale or exchange of a U. H and r free tax S. H and r free tax real property interest if you did not own more than 5% of that stock at any time during the 1-year period ending on the date of the distribution. H and r free tax A distribution that you do not treat as gain from the sale or exchange of a U. H and r free tax S. H and r free tax real property interest is included in your gross income as a regular dividend. H and r free tax Note. H and r free tax Beginning January 1, 2014 (unless extended by legislation), a RIC that is a U. H and r free tax S. H and r free tax real property holding corporation will only be treated as a QIE for certain distributions from the RIC that are directly or indirectly attributable to distributions received by the RIC from a REIT. H and r free tax Domestically controlled QIE. H and r free tax   The sale of an interest in a domestically controlled QIE is not the sale of a U. H and r free tax S. H and r free tax real property interest. H and r free tax The entity is domestically controlled if at all times during the testing period less than 50% in value of its stock was held, directly or indirectly, by foreign persons. H and r free tax The testing period is the shorter of (a) the 5-year period ending on the date of disposition, or (b) the period during which the entity was in existence. H and r free tax Wash sale. H and r free tax    If you dispose of an interest in a domestically controlled QIE in an applicable wash sale transaction, special rules apply. H and r free tax An applicable wash sale transaction is one in which you: Dispose of an interest in the domestically controlled QIE during the 30-day period before the ex-dividend date of a distribution that you would (but for the disposition) have treated as gain from the sale or exchange of a U. H and r free tax S. H and r free tax real property interest, and Acquire, or enter into a contract or option to acquire, a substantially identical interest in that entity during the 61-day period that began on the first day of the 30-day period. H and r free tax If this occurs, you are treated as having gain from the sale or exchange of a U. H and r free tax S. H and r free tax real property interest in an amount equal to the distribution made after June 15, 2006, that would have been treated as such gain. H and r free tax This also applies to any substitute dividend payment. H and r free tax   A transaction is not treated as an applicable wash sale transaction if: You actually receive the distribution from the domestically controlled QIE related to the interest disposed of, or acquired, in the transaction, or You dispose of any class of stock in a QIE that is regularly traded on an established securities market in the United States but only if you did not own more than 5% of that class of stock at any time during the 1-year period ending on the date of the distribution. H and r free tax Alternative minimum tax. H and r free tax   There may be a minimum tax on your net gain from the disposition of U. H and r free tax S. H and r free tax real property interests. H and r free tax Figure the amount of this tax, if any, on Form 6251. H and r free tax Withholding of tax. H and r free tax   If you dispose of a U. H and r free tax S. H and r free tax real property interest, the buyer may have to withhold tax. H and r free tax See the discussion of Tax Withheld on Real Property Sales in chapter 8. H and r free tax Foreign Income You must treat three kinds of foreign source income as effectively connected with a trade or business in the United States if: You have an office or other fixed place of business in the United States to which the income can be attributed, That office or place of business is a material factor in producing the income, and The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. H and r free tax An office or other fixed place of business is a material factor if it significantly contributes to, and is an essential economic element in, the earning of the income. H and r free tax The three kinds of foreign source income are listed below. H and r free tax Rents and royalties for the use of, or for the privilege of using, intangible personal property located outside the United States or from any interest in such property. H and r free tax Included are rents or royalties for the use, or for the privilege of using, outside the United States, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and similar properties if the rents or royalties are from the active conduct of a trade or business in the United States. H and r free tax Dividends, interest, or amounts received for the provision of a guarantee of indebtedness issued after September 27, 2010, from the active conduct of a banking, financing, or similar business in the United States. H and r free tax A substitute dividend or interest payment received under a securities lending transaction or a sale-repurchase transaction is treated the same as the amounts received on the transferred security. H and r free tax Income, gain, or loss from the sale outside the United States, through the U. H and r free tax S. H and r free tax office or other fixed place of business, of: Stock in trade, Property that would be included in inventory if on hand at the end of the tax year, or Property held primarily for sale to customers in the ordinary course of business. H and r free tax Item (3) will not apply if you sold the property for use, consumption, or disposition outside the United States and an office or other fixed place of business in a foreign country was a material factor in the sale. H and r free tax Any foreign source income that is equivalent to any item of income described above is treated as effectively connected with a U. H and r free tax S. H and r free tax trade or business. H and r free tax For example, foreign source interest and dividend equivalents are treated as U. H and r free tax S. H and r free tax effectively connected income if the income is derived by a foreign person in the active conduct of a banking, financing, or similar business within the United States. H and r free tax Tax on Effectively Connected Income Income you receive during the tax year that is effectively connected with your trade or business in the United States is, after allowable deductions, taxed at the rates that apply to U. H and r free tax S. H and r free tax citizens and residents. H and r free tax Generally, you can receive effectively connected income only if you are a nonresident alien engaged in trade or business in the United States during the tax year. H and r free tax However, income you receive from the sale or exchange of property, the performance of services, or any other transaction in another tax year is treated as effectively connected in that year if it would have been effectively connected in the year the transaction took place or you performed the services. H and r free tax Example. H and r free tax Ted Richards, a nonresident alien, entered the United States in August 2012, to perform personal services in the U. H and r free tax S. H and r free tax office of his overseas employer. H and r free tax He worked in the U. H and r free tax S. H and r free tax office until December 25, 2012, but did not leave this country until January 11, 2013. H and r free tax On January 8, 2013, he received his final paycheck for services performed in the United States during 2012. H and r free tax All of Ted's income during his stay here is U. H and r free tax S. H and r free tax source income. H and r free tax During 2012, Ted was engaged in the trade or business of performing personal services in the United States. H and r free tax Therefore, all amounts paid to him in 2012 for services performed in the United States during 2012 are effectively connected with that trade or business during 2012. H and r free tax The salary payment Ted received in January 2013 is U. H and r free tax S. H and r free tax source income to him in 2013. H and r free tax It is effectively connected with a trade or business in the United States because he was engaged in a trade or business in the United States during 2012 when he performed the services that earned the income. H and r free tax Real property income. H and r free tax   You may be able to choose to treat all income from real property as effectively connected. H and r free tax See Income From Real Property , later, in this chapter. H and r free tax The 30% Tax Tax at a 30% (or lower treaty) rate applies to certain items of income or gains from U. H and r free tax S. H and r free tax sources but only if the items are not effectively connected with your U. H and r free tax S. H and r free tax trade or business. H and r free tax Fixed or Determinable Income The 30% (or lower treaty) rate applies to the gross amount of U. H and r free tax S. H and r free tax source fixed or determinable annual or periodic gains, profits, or income. H and r free tax Income is fixed when it is paid in amounts known ahead of time. H and r free tax Income is determinable whenever there is a basis for figuring the amount to be paid. H and r free tax Income can be periodic if it is paid from time to time. H and r free tax It does not have to be paid annually or at regular intervals. H and r free tax Income can be determinable or periodic even if the length of time during which the payments are made is increased or decreased. H and r free tax Items specifically included as fixed or determinable income are interest (other than original issue discount), dividends, dividend equivalent payments (defined in chapter 2), rents, premiums, annuities, salaries, wages, and other compensation. H and r free tax A substitute dividend or interest payment received under a securities lending transaction or a sale-repurchase transaction is treated the same as the amounts received on the transferred security. H and r free tax Other items of income, such as royalties, also may be subject to the 30% tax. H and r free tax Some fixed or determinable income may be exempt from U. H and r free tax S. H and r free tax tax. H and r free tax See chapter 3 if you are not sure whether the income is taxable. H and r free tax Original issue discount (OID). H and r free tax   If you sold, exchanged, or received a payment on a bond or other debt instrument that was issued at a discount after March 31, 1972, all or part of the original issue discount (OID) (other than portfolio interest) may be subject to the 30% tax. H and r free tax The amount of OID is the difference between the stated redemption price at maturity and the issue price of the debt instrument. H and r free tax The 30% tax applies in the following circumstances. H and r free tax You received a payment on a debt instrument. H and r free tax In this case, the amount of OID subject to tax is the OID that accrued while you held the debt instrument minus the OID previously taken into account. H and r free tax But the tax on the OID cannot be more than the payment minus the tax on the interest payment on the debt instrument. H and r free tax You sold or exchanged the debt instrument. H and r free tax The amount of OID subject to tax is the OID that accrued while you held the debt instrument minus the amount already taxed in (1) above. H and r free tax   Report on your return the amount of OID shown on Form 1042-S, Foreign Person's U. H and r free tax S. H and r free tax Source Income Subject to Withholding, if you bought the debt instrument at original issue. H and r free tax However, you must recompute your proper share of OID shown on Form 1042-S if any of the following apply. H and r free tax You bought the debt instrument at a premium or paid an acquisition premium. H and r free tax The debt instrument is a stripped bond or a stripped coupon (including zero coupon instruments backed by U. H and r free tax S. H and r free tax Treasury securities). H and r free tax The debt instrument is a contingent payment or inflation-indexed debt instrument. H and r free tax For the definition of premium and acquisition premium and instructions on how to recompute OID, get Publication 1212. H and r free tax   If you held a bond or other debt instrument that was issued at a discount before April 1, 1972, contact the IRS for further information. H and r free tax See chapter 12. H and r free tax Gambling Winnings In general, nonresident aliens are subject to the 30% tax on the gross proceeds from gambling won in the United States if that income is not effectively connected with a U. H and r free tax S. H and r free tax trade or business and is not exempted by treaty. H and r free tax However, no tax is imposed on nonbusiness gambling income a nonresident alien wins playing blackjack, baccarat, craps, roulette, or big-6 wheel in the United States. H and r free tax Nonresident aliens are taxed at graduated rates on net gambling income won in the United States that is effectively connected with a U. H and r free tax S. H and r free tax trade or business. H and r free tax Social Security Benefits A nonresident alien must include 85% of any U. H and r free tax S. H and r free tax social security benefit (and the social security equivalent part of a tier 1 railroad retirement benefit) in U. H and r free tax S. H and r free tax source fixed or determinable annual or periodic income. H and r free tax Social security benefits include monthly retirement, survivor, and disability benefits. H and r free tax This income is exempt under some tax treaties. H and r free tax See Table 1 in Publication 901, U. H and r free tax S. H and r free tax Tax Treaties, for a list of tax treaties that exempt U. H and r free tax S. H and r free tax social security benefits from U. H and r free tax S. H and r free tax tax. H and r free tax Sales or Exchanges of Capital Assets These rules apply only to those capital gains and losses from sources in the United States that are not effectively connected with a trade or business in the United States. H and r free tax They apply even if you are engaged in a trade or business in the United States. H and r free tax These rules do not apply to the sale or exchange of a U. H and r free tax S. H and r free tax real property interest or to the sale of any property that is effectively connected with a trade or business in the United States. H and r free tax See Real Property Gain or Loss , earlier, under Effectively Connected Income. H and r free tax A capital asset is everything you own except: Inventory. H and r free tax Business accounts or notes receivable. H and r free tax Depreciable property used in a trade or business. H and r free tax Real property used in a trade or business. H and r free tax Supplies regularly used in a trade or business. H and r free tax Certain copyrights, literary or musical or artistic compositions, letters or memoranda, or similar property. H and r free tax Certain U. H and r free tax S. H and r free tax government publications. H and r free tax Certain commodities derivative financial instruments held by a commodities derivatives dealer. H and r free tax Hedging transactions. H and r free tax A capital gain is a gain on the sale or exchange of a capital asset. H and r free tax A capital loss is a loss on the sale or exchange of a capital asset. H and r free tax If the sale is in foreign currency, for the purpose of determining gain, the cost and selling price of the property should be expressed in U. H and r free tax S. H and r free tax currency at the rate of exchange prevailing as of the date of the purchase and date of the sale, respectively. H and r free tax You may want to read Publication 544. H and r free tax However, use Publication 544 only to determine what is a sale or exchange of a capital asset, or what is treated as such. H and r free tax Specific tax treatment that applies to U. H and r free tax S. H and r free tax citizens or residents generally does not apply to you. H and r free tax The following gains are subject to the 30% (or lower treaty) rate without regard to the 183-day rule, discussed later. H and r free tax Gains on the disposal of timber, coal, or domestic iron ore with a retained economic interest. H and r free tax Gains on contingent payments received from the sale or exchange of patents, copyrights, and similar property after October 4, 1966. H and r free tax Gains on certain transfers of all substantial rights to, or an undivided interest in, patents if the transfers were made before October 5, 1966. H and r free tax Gains on the sale or exchange of original issue discount obligations. H and r free tax Gains in (1) are not subject to the 30% (or lower treaty) rate if you choose to treat the gains as effectively connected with a U. H and r free tax S. H and r free tax trade or business. H and r free tax See Income From Real Property , later. H and r free tax 183-day rule. H and r free tax   If you were in the United States for 183 days or more during the tax year, your net gain from sales or exchanges of capital assets is taxed at a 30% (or lower treaty) rate. H and r free tax For purposes of the 30% (or lower treaty) rate, net gain is the excess of your capital gains from U. H and r free tax S. H and r free tax sources over your capital losses from U. H and r free tax S. H and r free tax sources. H and r free tax This rule applies even if any of the transactions occurred while you were not in the United States. H and r free tax   To determine your net gain, consider the amount of your gains and losses that would be recognized and taken into account only if, and to the extent that, they would be recognized and taken into account if you were in a U. H and r free tax S. H and r free tax trade or business during the year and the gains and losses were effectively connected with that trade or business during the tax year. H and r free tax   In arriving at your net gain, do not take the following into consideration. H and r free tax The four types of gains listed earlier. H and r free tax The deduction for a capital loss carryover. H and r free tax Capital losses in excess of capital gains. H and r free tax Exclusion for gain from the sale or exchange of qualified small business stock (section 1202 exclusion). H and r free tax Losses from the sale or exchange of property held for personal use. H and r free tax However, losses resulting from casualties or thefts may be deductible on Schedule A (Form 1040NR). H and r free tax See Itemized Deductions in chapter 5. H and r free tax   If you are not engaged in a trade or business in the United States and have not established a tax year for a prior period, your tax year will be the calendar year for purposes of the 183-day rule. H and r free tax Also, you must file your tax return on a calendar-year basis. H and r free tax   If you were in the United States for less than 183 days during the tax year, capital gains (other than gains listed earlier) are tax exempt unless they are effectively connected with a trade or business in the United States during your tax year. H and r free tax Reporting. H and r free tax   Report your gains and losses from the sales or exchanges of capital assets that are not effectively connected with a trade or business in the United States on page 4 of Form 1040NR. H and r free tax Report gains and losses from sales or exchanges of capital assets (including real property) that are effectively connected with a trade or business in the United States on a separate Schedule D (Form 1040), Form 4797, or both. H and r free tax Attach them to Form 1040NR. H and r free tax Income From Real Property If you have income from real property located in the United States that you own or have an interest in and hold for the production of income, you can choose to treat all income from that property as income effectively connected with a trade or business in the United States. H and r free tax The choice applies to all income from real property located in the United States and held for the production of income and to all income from any interest in such property. H and r free tax This includes income from rents, royalties from mines, oil or gas wells, or other natural resources. H and r free tax It also includes gains from the sale or exchange of timber, coal, or domestic iron ore with a retained economic interest. H and r free tax You can make this choice only for real property income that is not otherwise effectively connected with your U. H and r free tax S. H and r free tax trade or business. H and r free tax If you make the choice, you can claim deductions attributable to the real property income and only your net income from real property is taxed. H and r free tax This choice does not treat a nonresident alien, who is not otherwise engaged in a U. H and r free tax S. H and r free tax trade or business, as being engaged in a trade or business in the United States during the year. H and r free tax Example. H and r free tax You are a nonresident alien and are not engaged in a U. H and r free tax S. H and r free tax trade or business. H and r free tax You own a single-family house in the United States that you rent out. H and r free tax Your rental income for the year is $10,000. H and r free tax This is your only U. H and r free tax S. H and r free tax source income. H and r free tax As discussed earlier under The 30% Tax, the rental income is subject to a tax at a 30% (or lower treaty) rate. H and r free tax You received a Form 1042-S showing that your tenants properly withheld this tax from the rental income. H and r free tax You do not have to file a U. H and r free tax S. H and r free tax tax return (Form 1040NR) because your U. H and r free tax S. H and r free tax tax liability is satisfied by the withholding of tax. H and r free tax If you make the choice discussed earlier, you can offset the $10,000 income by certain rental expenses. H and r free tax (See Publication 527, Residential Rental Property, for information on rental expenses. H and r free tax ) Any resulting net income is taxed at graduated rates. H and r free tax If you make this choice, report the rental income and expenses on Schedule E (Form 1040) and attach the schedule to Form 1040NR. H and r free tax For the first year you make the choice, also attach the statement discussed next. H and r free tax Making the choice. H and r free tax   Make the initial choice by attaching a statement to your return, or amended return, for the year of the choice. H and r free tax Include the following in your statement. H and r free tax That you are making the choice. H and r free tax Whether the choice is under Internal Revenue Code section 871(d) (explained earlier) or a tax treaty. H and r free tax A complete list of all your real property, or any interest in real property, located in the United States. H and r free tax Give the legal identification of U. H and r free tax S. H and r free tax timber, coal, or iron ore in which you have an interest. H and r free tax The extent of your ownership in the property. H and r free tax The location of the property. H and r free tax A description of any major improvements to the property. H and r free tax The dates you owned the property. H and r free tax Your income from the property. H and r free tax Details of any previous choices and revocations of the real property income choice. H and r free tax   This choice stays in effect for all later tax years unless you revoke it. H and r free tax Revoking the choice. H and r free tax   You can revoke the choice without IRS approval by filing Form 1040X, Amended U. H and r free tax S. H and r free tax Individual Income Tax Return, for the year you made the choice and for later tax years. H and r free tax You must file Form 1040X within 3 years from the date your return was filed or 2 years from the time the tax was paid, whichever is later. H and r free tax If this time period has expired for the year of choice, you cannot revoke the choice for that year. H and r free tax However, you may revoke the choice for later tax years only if you have IRS approval. H and r free tax For information on how to get IRS approval, see Regulation section 1. H and r free tax 871-10(d)(2). H and r free tax Transportation Tax A 4% tax rate applies to transportation income that is not effectively connected because it does not meet the two conditions listed earlier under Transportation Income . H and r free tax If you receive transportation income subject to the 4% tax, you should figure the tax and show it on line 57 of Form 1040NR. H and r free tax Attach a statement to your return that includes the following information (if applicable). H and r free tax Your name, taxpayer identification number, and tax year. H and r free tax A description of the types of services performed (whether on or off board). H and r free tax Names of vessels or registration numbers of aircraft on which you performed the services. H and r free tax Amount of U. H and r free tax S. H and r free tax source transportation income derived from each type of service for each vessel or aircraft for the calendar year. H and r free tax Total amount of U. H and r free tax S. H and r free tax source transportation income derived from all types of services for the calendar year. H and r free tax This 4% tax applies to your U. H and r free tax S. H and r free tax source gross transportation income. H and r free tax This only includes transportation income that is treated as derived from sources in the United States if the transportation begins or ends in the United States. H and r free tax For transportation income from personal services, the transportation must be between the United States and a U. H and r free tax S. H and r free tax possession. H and r free tax For personal services of a nonresident alien, this only applies to income derived from, or in connection with, an aircraft. H and r free tax Interrupted Period of Residence You are subject to tax under a special rule if you interrupt your period of U. H and r free tax S. H and r free tax residence with a period of nonresidence. H and r free tax The special rule applies if you meet all of the following conditions. H and r free tax You were a U. H and r free tax S. H and r free tax resident for a period that includes at least 3 consecutive calendar years. H and r free tax You were a U. H and r free tax S. H and r free tax resident for at least 183 days in each of those years. H and r free tax You ceased to be treated as a U. H and r free tax S. H and r free tax resident. H and r free tax You then again became a U. H and r free tax S. H and r free tax resident before the end of the third calendar year after the end of the period described in (1) above. H and r free tax Under this special rule, you are subject to tax on your U. H and r free tax S. H and r free tax source gross income and gains on a net basis at the graduated rates applicable to individuals (with allowable deductions) for the period you were a nonresident alien, unless you would be subject to a higher tax under the 30% tax (discussed earlier) on income not connected with a U. H and r free tax S. H and r free tax trade or business. H and r free tax For information on how to figure the special tax, see How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) under Expatriation Tax , below. H and r free tax Example. H and r free tax John Willow, a citizen of New Zealand, entered the United States on April 1, 2008, as a lawful permanent resident. H and r free tax On August 1, 2010, John ceased to be a lawful permanent resident and returned to New Zealand. H and r free tax During his period of residence, he was present in the United States for at least 183 days in each of three consecutive years (2008, 2009, and 2010). H and r free tax He returned to the United States on October 5, 2013, as a lawful permanent resident. H and r free tax He became a resident before the close of the third calendar year (2013) beginning after the end of his first period of residence (August 1, 2010). H and r free tax Therefore, he is subject to tax under the special rule for the period of nonresidence (August 2, 2010, through October 4, 2013) if it is more than the tax that would normally apply to him as a nonresident alien. H and r free tax Reporting requirements. H and r free tax   If you are subject to this tax for any year in the period you were a nonresident alien, you must file Form 1040NR for that year. H and r free tax The return is due by the due date (including extensions) for filing your U. H and r free tax S. H and r free tax income tax return for the year that you again become a U. H and r free tax S. H and r free tax resident. H and r free tax If you already filed returns for that period, you must file amended returns. H and r free tax You must attach a statement to your return that identifies the source of all of your U. H and r free tax S. H and r free tax and foreign gross income and the items of income subject to this special rule. H and r free tax Expatriation Tax The expatriation tax provisions apply to U. H and r free tax S. H and r free tax citizens who have renounced their citizenship and long-term residents who have ended their residency. H and r free tax The rules that apply are based on the dates of expatriation, which are described in the following sections. H and r free tax Expatriation Before June 4, 2004. H and r free tax Expatriation After June 3, 2004, and Before June 17, 2008. H and r free tax Expatriation After June 16, 2008. H and r free tax Long-term resident defined. H and r free tax   You are a long-term resident if you were a lawful permanent resident of the United States in at least 8 of the last 15 tax years ending with the year your residency ends. H and r free tax In determining if you meet the 8-year requirement, do not count any year that you are treated as a resident of a foreign country under a tax treaty and do not waive treaty benefits. H and r free tax Expatriation Before June 4, 2004 If you expatriated before June 4, 2004, the expatriation rules apply if one of the principal purposes of the action is the avoidance of U. H and r free tax S. H and r free tax taxes. H and r free tax Unless you received a ruling from the IRS that you did not expatriate to avoid U. H and r free tax S. H and r free tax taxes, you are presumed to have tax avoidance as a principal purpose if: Your average annual net income tax for the last 5 tax years ending before the date of your action to relinquish your citizenship or terminate your residency was more than $100,000, or Your net worth on the date of your action was $500,000 or more. H and r free tax The amounts above are adjusted for inflation if your expatriation action is after 1997 (see Table 4-1). H and r free tax Table 4-1. H and r free tax Inflation-Adjusted Amounts for Expatriation Actions Before June 4, 2004 IF you expatriated during . H and r free tax . H and r free tax . H and r free tax   THEN the rules outlined on this page apply if . H and r free tax . H and r free tax . H and r free tax     Your 5-year average annual net income tax was more than . H and r free tax . H and r free tax . H and r free tax OR Your net worth equaled or exceeded . H and r free tax . H and r free tax . H and r free tax 1999   110,000   552,000 2000   112,000   562,000 2001   116,000   580,000 2002   120,000   599,000 2003   122,000   608,000 2004 (before June 4)*   124,000   622,000 *If you expatriated after June 3, 2004, see Expatriation After June 3, 2004, and Before June 17, 2008 or Expatriation After June 16, 2008. H and r free tax Reporting requirements. H and r free tax   If you lost your U. H and r free tax S. H and r free tax citizenship, you should have filed Form 8854 with a consular office or a federal court at the time of loss of citizenship. H and r free tax If you ended your long-term residency, you should have filed Form 8854 with the Internal Revenue Service when you filed your dual-status tax return for the year your residency ended. H and r free tax   Your U. H and r free tax S. H and r free tax residency is considered to have ended when you ceased to be a lawful permanent resident or you began to be treated as a resident of another country under a tax treaty and do not waive treaty benefits. H and r free tax Penalties. H and r free tax   If you failed to file Form 8854, you may have to pay a penalty equal to the greater of 5% of the expatriation tax or $1,000. H and r free tax The penalty will be assessed for each year of the 10-year period beginning on the date of expatriation during which your failure to file continues. H and r free tax The penalty will not be imposed if you can show that the failure is due to reasonable cause and not willful neglect. H and r free tax Expatriation tax. H and r free tax   The expatriation tax applies to the 10-year period following the date of expatriation or termination of residency. H and r free tax It is figured in the same way as for those expatriating after June 3, 2004, and before June 17, 2008. H and r free tax See How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) in the next section. H and r free tax Expatriation After June 3, 2004, and Before June 17, 2008 If you expatriated after June 3, 2004, and before June 17, 2008, the expatriation rules apply to you if any of the following statements apply. H and r free tax Your average annual net income tax for the 5 tax years ending before the date of expatriation or termination of residency is more than: $124,000 if you expatriated or terminated residency in 2004. H and r free tax $127,000 if you expatriated or terminated residency in 2005. H and r free tax $131,000 if you expatriated or terminated residency in 2006. H and r free tax $136,000 if you expatriated or terminated residency in 2007. H and r free tax $139,000 if you expatriated or terminated residency in 2008. H and r free tax Your net worth is $2 million or more on the date of your expatriation or termination of residency. H and r free tax You fail to certify on Form 8854 that you have complied with all U. H and r free tax S. H and r free tax federal tax obligations for the 5 tax years preceding the date of your expatriation or termination of residency. H and r free tax Exception for dual-citizens and certain minors. H and r free tax   Certain dual-citizens and certain minors (defined next) are not subject to the expatriation tax even if they meet (1) or (2) earlier. H and r free tax However, they still must provide the certification required in (3). H and r free tax Certain dual-citizens. H and r free tax   You may qualify for the exception described above if all of the following apply. H and r free tax You became at birth a U. H and r free tax S. H and r free tax citizen and a citizen of another country and you continue to be a citizen of that other country. H and r free tax You were never a resident alien of the United States (as defined in chapter 1). H and r free tax You never held a U. H and r free tax S. H and r free tax passport. H and r free tax You were present in the United States for no more than 30 days during any calendar year that is 1 of the 10 calendar years preceding your loss of U. H and r free tax S. H and r free tax citizenship. H and r free tax Certain minors. H and r free tax   You may qualify for the exception described above if you meet all of the following requirements. H and r free tax You became a U. H and r free tax S. H and r free tax citizen at birth. H and r free tax Neither of your parents was a U. H and r free tax S. H and r free tax citizen at the time of your birth. H and r free tax You expatriated before you were 18½. H and r free tax You were present in the United States for not more than 30 days during any calendar year that is 1 of the 10 calendar years preceding your expatriation. H and r free tax Tax consequences of presence in the United States. H and r free tax   The following rules apply if you do not meet the exception above for dual-citizens and certain minors and the expatriation rules would otherwise apply to you. H and r free tax   The expatriation tax does not apply to any tax year during the 10-year period if you are physically present in the United States for more than 30 days during the calendar year ending in that year. H and r free tax Instead, you are treated as a U. H and r free tax S. H and r free tax citizen or resident and taxed on your worldwide income for that tax year. H and r free tax You must file Form 1040, 1040A, or 1040EZ and figure your tax as prescribed in the instructions for those forms. H and r free tax   When counting the number of days of presence during a calendar year, count any day you were physically present in the United States at any time during the day. H and r free tax However, do not count any days (up to a limit of 30 days) on which you performed personal services in the United States for an employer who is not related to you if either of the following apply. H and r free tax You have ties with other countries. H and r free tax You have ties with other countries if: You became (within a reasonable period after your expatriation or termination of residency) a citizen or resident of the country in which you, your spouse, or either of your parents were born, and You became fully liable for income tax in that country. H and r free tax You were physically present in the United States for 30 days or less during each year in the 10-year period ending on the date of expatriation or termination of residency. H and r free tax Do not count any day you were an exempt individual or were unable to leave the United States because of a medical condition that arose while you were in the United States. H and r free tax See Exempt individual and Medical condition in chapter 1 under Substantial Presence Test, but disregard the information about Form 8843. H and r free tax Related employer. H and r free tax   If your employer in the United States is any of the following, then your employer is related to you. H and r free tax You must count any days you performed services in the United States for that employer as days of presence in the United States. H and r free tax Members of your family. H and r free tax This includes only your brothers and sisters, half-brothers and half-sisters, spouse, ancestors (parents, grandparents, etc. H and r free tax ), and lineal descendants (children, grandchildren, etc. H and r free tax ). H and r free tax A partnership in which you directly or indirectly own more than 50% of the capital interest or the profits interest. H and r free tax A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock. H and r free tax (See Publication 550, chapter 4, Constructive ownership of stock, for how to determine whether you directly or indirectly own outstanding stock. H and r free tax ) A tax-exempt charitable or educational organization that is directly or indirectly controlled, in any manner or by any method, by you or by a member of your family, whether or not this control is legally enforceable. H and r free tax Date of tax expatriation. H and r free tax   For purposes of U. H and r free tax S. H and r free tax tax rules, the date of your expatriation or termination of residency is the later of the dates on which you perform the following actions. H and r free tax You notify either the Department of State or the Department of Homeland Security (whichever is appropriate) of your expatriating act or termination of residency. H and r free tax You file Form 8854 in accordance with the form instructions. H and r free tax Annual return. H and r free tax   If the expatriation tax applies to you, you must file Form 8854 each year during the 10-year period following the date of expatriation. H and r free tax You must file this form even if you owe no U. H and r free tax S. H and r free tax tax. H and r free tax Penalty. H and r free tax   If you fail to file Form 8854 for any tax year, fail to include all information required to be shown on the form, or include incorrect information, you may have to pay a penalty of $10,000. H and r free tax You will not have to pay a penalty if you show that the failure is due to reasonable cause and not to willful neglect. H and r free tax How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) If the expatriation tax applies to you, you are generally subject to tax on your U. H and r free tax S. H and r free tax source gross income and gains on a net basis at the graduated rates applicable to individuals (with allowable deductions) unless you would be subject to a higher tax under the 30% tax (discussed earlier) on income not connected with a U. H and r free tax S. H and r free tax trade or business. H and r free tax For this purpose, U. H and r free tax S. H and r free tax source gross income (defined in chapter 2) includes gains from the sale or exchange of: Property (other than stock or debt obligations) located in the United States, Stock issued by a U. H and r free tax S. H and r free tax domestic corporation, and Debt obligations of U. H and r free tax S. H and r free tax persons or of the United States, a state or political subdivision thereof, or the District of Columbia. H and r free tax U. H and r free tax S. H and r free tax source income also includes any income or gain derived from stock in certain controlled foreign corporations if you owned, or were considered to own, at any time during the 2-year period ending on the date of expatriation, more than 50% of: The total combined voting power of all classes of that corporation's stock, or The total value of the stock. H and r free tax The income or gain is considered U. H and r free tax S. H and r free tax source income only to the extent of your share of earnings and profits earned or accumulated before the date of expatriation and during the periods you met the ownership requirements discussed above. H and r free tax Any exchange of property is treated as a sale of the property at its fair market value on the date of the exchange and any gain is treated as U. H and r free tax S. H and r free tax source gross income in the tax year of the exchange unless you enter into a gain recognition agreement under Notice 97-19. H and r free tax Other information. H and r free tax   For more information on the expatriation tax provisions, including exceptions to the tax and special U. H and r free tax S. H and r free tax source rules, see section 877 of the Internal Revenue Code. H and r free tax Expatriation Tax Return If you expatriated or terminated your U. H and r free tax S. H and r free tax residency, or you are subject to the expatriation tax, you must file Form 8854, Initial and Annual Expatriation Statement. H and r free tax Attach it to Form 1040NR if you are required to file that form. H and r free tax If you are present in the United States following your expatriation and are subject to tax as a U. H and r free tax S. H and r free tax citizen or resident, file Form 8854 with Form 1040. H and r free tax Expatriation After June 16, 2008 If you expatriated after June 16, 2008, the expatriation rules apply to you if you meet any of the following conditions. H and r free tax Your average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than: $139,000 if you expatriated or terminated residency in 2008. H and r free tax $145,000 if you expatriated or terminated residency in 2009 or 2010. H and r free tax $147,000 if you expatriated or terminated residency in 2011. H and r free tax $151,000 if you expatriated or terminated residency in 2012. H and r free tax $155,000 if you expatriated or terminated residency in 2013. H and r free tax Your net worth is $2 million or more on the date of your expatriation or termination of residency. H and r free tax You fail to certify on Form 8854 that you have complied with all U. H and r free tax S. H and r free tax federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency. H and r free tax Exception for dual-citizens and certain minors. H and r free tax   Certain dual-citizens and certain minors (defined next) are not subject to the expatriation tax even if they meet (1) or (2) above. H and r free tax However, they still must provide the certification required in (3) above. H and r free tax Certain dual-citizens. H and r free tax   You may qualify for the exception described above if both of the following apply. H and r free tax You became at birth a U. H and r free tax S. H and r free tax citizen and a citizen of another country and you continue to be a citizen of, and are taxed as a resident of, that other country. H and r free tax You have been a resident of the United States for not more than 10 years during the 15-year tax period ending with the tax year during which the expatriation occurs. H and r free tax For the purpose of determining U. H and r free tax S. H and r free tax residency, use the substantial presence test described in chapter 1. H and r free tax Certain minors. H and r free tax   You may qualify for the exception described earlier if you meet both of the following requirements. H and r free tax You expatriated before you were 18½. H and r free tax You have been a resident of the United States for not more than 10 tax years before the expatriation occurs. H and r free tax For the purpose of determining U. H and r free tax S. H and r free tax residency, use the substantial presence test described in chapter 1. H and r free tax Expatriation date. H and r free tax   Your expatriation date is the date you relinquish U. H and r free tax S. H and r free tax citizenship (in the case of a former citizen) or terminate your long-term residency (in the case of a former U. H and r free tax S. H and r free tax resident). H and r free tax Former U. H and r free tax S. H and r free tax citizen. H and r free tax   You are considered to have relinquished your U. H and r free tax S. H and r free tax citizenship on the earliest of the following dates. H and r free tax The date you renounced U. H and r free tax S. H and r free tax citizenship before a diplomatic or consular officer of the United States (provided that the voluntary renouncement was later confirmed by the issuance of a certificate of loss of nationality). H and r free tax The date you furnished to the State Department a signed statement of voluntary relinquishment of U. H and r free tax S. H and r free tax nationality confirming the performance of an expatriating act (provided that the voluntary relinquishment was later confirmed by the issuance of a certificate of loss of nationality). H and r free tax The date the State Department issued a certificate of loss of nationality. H and r free tax The date that a U. H and r free tax S. H and r free tax court canceled your certificate of naturalization. H and r free tax Former long-term resident. H and r free tax   You are considered to have terminated your long-term residency on the earliest of the following dates. H and r free tax The date you voluntarily relinquished your lawful permanent resident status by filing Department of Homeland Security Form I-407 with a U. H and r free tax S. H and r free tax consular or immigration officer, and the Department of Homeland Security determined that you have, in fact, abandoned your lawful permanent resident status. H and r free tax The date you became subject to a final administrative order for your removal from the United States under the Immigration and Nationality Act and you actually left the United States as a result of that order. H and r free tax If you were a dual resident of the United States and a country with which the United States has an income tax treaty, the date you began to be treated as a resident of that country and you determined that, for purposes of the treaty, you are a resident of the treaty country and notify the IRS of that treatment on Forms 8833 and 8854. H and r free tax See Effect of Tax Treaties in chapter 1 for more information about dual residents. H and r free tax How To Figure the Expatriation Tax (If You Expatriate After June 16, 2008) In the year you expatriate, you are subject to income tax on the net unrealized gain (or loss) in your property as if the property had been sold for its fair market value on the day before your expatriation date (“mark-to-market tax”). H and r free tax This applies to most types of property interests you held on the date of relinquishment of citizenship or termination of residency. H and r free tax But see Exceptions , later. H and r free tax Gains arising from deemed sales must be taken into account for the tax year of the deemed sale without regard to other U. H and r free tax S. H and r free tax internal revenue laws. H and r free tax Losses from deemed sales must be taken into account to the extent otherwise provided under U. H and r free tax S. H and r free tax internal revenue laws. H and r free tax However, Internal Revenue Code section 1091 (relating to the disallowance of losses on wash sales of stock and securities) does not apply. H and r free tax The net gain that you otherwise must include in your income is reduced (but not below zero) by: $600,000 if you expatriated or terminated residency before January 1, 2009. H and r free tax $626,000 if you expatriated or terminated residency in 2009. H and r free tax $627,000 if you expatriated or terminated residency in 2010. H and r free tax $636,000 if you expatriated or terminated residency in 2011. H and r free tax $651,000 if you expatriated or terminated residency in 2012. H and r free tax $668,000 if you expatriated or terminated residency in 2013. H and r free tax Exceptions. H and r free tax   The mark-to-market tax does not apply to the following. H and r free tax Eligible deferred compensation items. H and r free tax Ineligible deferred compensation items. H and r free tax Interests in nongrantor trusts. H and r free tax Specified tax deferred accounts. H and r free tax Instead, items (1) and (3) may be subject to withholding at source. H and r free tax In the case of item (2), you are treated as receiving the present value of your accrued benefit as of the day before the expatriation date. H and r free tax In the case of item (4), you are treated as receiving a distribution of your entire interest in the account on the day before your expatriation date. H and r free tax See paragraphs (d), (e), and (f) of section 877A for more information. H and r free tax Expatriation Tax Return If you expatriated or terminated your U. H and r free tax S. H and r free tax residency, or you are subject to the expatriation rules (as discussed earlier in the first paragraph under Expatriation After June 16, 2008), you must file Form 8854. H and r free tax Attach it to Form 1040 or Form 1040NR if you are required to file either of those forms. H and r free tax Deferral of payment of mark-to-market tax. H and r free tax   You can make an irrevocable election to defer payment of the mark-to-market tax imposed on the deemed sale of property. H and r free tax If you make this election, the following rules apply. H and r free tax You can make the election on a property-by-property basis. H and r free tax The deferred tax attributable to a particular property is due on the return for the tax year in which you dispose of the property. H and r free tax Interest is charged for the period the tax is deferred. H and r free tax The due date for the payment of the deferred tax cannot be extended beyond the earlier of the following dates. H and r free tax The due date of the return required for the year of death. H and r free tax The time that the security provided for the property fails to be adequate. H and r free tax See item (6) below. H and r free tax You make the election on Form 8854. H and r free tax You must provide adequate security (such as a bond). H and r free tax You must make an irrevocable waiver of any right under any treaty of the United States which would preclude assessment or collection of the mark-to-market tax. H and r free tax   For more information about the deferral of payment, see the Instructions for Form 8854. H and r free tax Prev  Up  Next   Home   More Online Publications