F1 student in US -capital gains on stocks transferred across

fighting_illini · Post by **fighting_illini** » Tue Apr 03, 2012 7:41 pm

Hi there,

In short: what is my cost basis if I owned stocks in canada, transferred them to the US and then sold them in the US? book value in canada? FMV on date of transfer?

In detail: I'm a Canadian citizen and law student studying on an F1 visa in the US. My law program is a full 3 year program.
Before moving to the US I held a number of US stocks with a Canadian discount brokerage. After moving to the US I eventually switched to an American discount brokerage. In 2011 I sold a number of stocks, however the American brokerage did not provide me with tax forms reporting capital gains/losses as they believe I am tax exempt, however a reading of the IRC leads me to strongly believe I am subject to 30% capital gains due to my presence of more than 183 days per year.

To be in compliance with the IRS I would like to manually report the capital gains I realized in 2011, however I am unsure of the basis I should use.
If anyone has encountered this in the past, I would appreciate your wisdom.

Best,
fighting_illini

JGCA · Post by **JGCA** » Tue Apr 03, 2012 7:51 pm

Your cost basis in US is the FMW when you came to the US, the date you trf them to US is not relevant since you may have still been in Canada its the day you came to US .

fighting_illini · Post by **fighting_illini** » Tue Apr 03, 2012 7:58 pm

thank you for the prompt response JGCA, do you have a case/rule I can cite to? I'd like to provide a footnote with my return.

nelsona · Post by **nelsona** » Tue Apr 03, 2012 9:04 pm

IRS Rev Proc 2010-19 has specific instructions that you must follow in order to be able to used your deemed disposition value when leaving Canada as your new cost basis for US purposes.

Otherwise it is the original cost basis.

fighting_illini · Post by **fighting_illini** » Tue Apr 03, 2012 9:18 pm

Thank you for the reply and information nelsona. Do you have an opinion as to IRS Rev Proc 2010-19 (dealing with emigration) and its interplay with my F1 Visa (a non-immigration intent visa)?

nelsona · Post by **nelsona** » Tue Apr 03, 2012 9:32 pm

Ah, I had not read this. You are NOT a US tax resident because of your F status.
So, you file a 1040NR, which nmeans you don;t report cap gain in US at all, but you report everything in canada as if you never left -- because technically you haven't, since you are not e US tax residnt, and you must be tax resident somewhere.

fighting_illini · Post by **fighting_illini** » Tue Apr 03, 2012 9:37 pm

sorry to complicate things, but what about this:

http://www.irs.gov/businesses/small/int ... 53,00.html

"RC section 871(a)(2) imposes a flat tax of 30 percent on U.S. source capital gains in the hands of nonresident alien individuals physically present in the United States for 183 days or more during the taxable year. .... The same rule applies to a foreign student or scholar visiting the United States in F, J, M, or Q nonimmigrant status whose presence in the United States equals or exceeds 183 days in any calendar year."

My reading of this makes me believe I do have to file capital gains with my 1040-NR, however I am still unsure whether I can used deemed disposition value when I have not "emigrated" from Canada....

fighting_illini · Post by **fighting_illini** » Tue Apr 03, 2012 9:47 pm

I'm not sure how relevant this is to "U.S. source capital gains" portion of that link i posted - but the american stocks in question were purchased by Canadian earned income.. although I will presume that using the american brokerage to realize the gains is enough to derive it as a "U.S source capital gain"

thoughts?

nelsona · Post by **nelsona** » Tue Apr 03, 2012 9:50 pm

The Cdn treaty overrides this, making the tax 0% for non-residents.

Basically, intil you are off F status, you never leave Canada. All you ned to report on 1040NR is US-sourced wages and scholarships. Not cap gains, not interest. The 1040NR will contain sufficient information for IRS to realize that you are non-resident due to F status.

You will of course reamin fully taxable in your province.

fighting_illini · Post by **fighting_illini** » Tue Apr 03, 2012 10:01 pm

That's certainly a relief! Thanks for helping address my questions.
Would it be possible to direct me to the specific provision on the treaty? Once I read it, I think I'm going out for a few beers knowing I can just send my gains info to my accounting friends in vancouver haha

nelsona · Post by **nelsona** » Wed Apr 04, 2012 5:34 am

Not really much to celebrate, since you would not be more taxable in US, than you are in Canada.

Its not a treaty provision. Its your F1 status, which keeps you non-resident.

Look at the treaty article on "Gains".

JGCA · Post by **JGCA** » Thu Apr 05, 2012 8:56 am

Nelsona, for my info he is a resident of Canada and therefore a non resident for tax in US and must file a 1040NR, now under treaty again can he file a full 1040 instead repoerting his world income including the cap gain and int and use all the exemptions on a full 1040 as any other citizen could again under teh treaty which allows CND to do this, could he invoke this treaty position if he wanted to.

nelsona · Post by **nelsona** » Thu Apr 05, 2012 4:09 pm

Under all versions of the treaty he can file a 1040, jus like any other Cdn can. However this does nothing to his Cdn tax residency. He is merely asking to be TREATED like a US resident, but it does not MAKE him a US resident by US rules, nor by treaty, thus he cannot use the treaty residency clause to break Cdn tax residency.

JGCA · Post by **JGCA** » Thu Apr 05, 2012 7:57 pm

I realise that the CND tax would not change, I was asking only about teh filing option for the US side, thanks

nelsona · Post by **nelsona** » Fri Apr 06, 2012 6:07 am

I know YOU know. Others read this.