F2 visa, capital gains taxes? Was previously F1 for 4 years

yt1023 · Post by **yt1023** » Tue May 03, 2011 8:37 pm

Hi,

I am a Canadian citizen previously in the US on a F1 visa for 4 years of college. I left the US for 1.5 years, and am now returning on a F2 visa (spouse of F1). As a F2, do I need to pay taxes on capital gains (I trade stocks through online brokers based in the US, and my money stays in the US)?

Does the fact that I was on a F1 visa for 4 years previously affect how I will be taxed as a F2 now?

Also I've been paying my taxes as a resident for the past 2 years because I didn't know the difference back then, will this be a problem if I revert back to filing as a non resident?

Thank you so much!

nelsona · Post by **nelsona** » Wed May 04, 2011 8:45 am

How have you been reporting in canada? As an "F" visa holder , you never break Cdn taxation, so you continue to report world income in canada.

How you report in US will depend on whether it is advantageous or not to file 1040 in US or 1040NR. 1040 you would report all world income, and 1040NR you would only report US-sourced income.

Stocks are not US-sourced just because you have a US broker, ofr because the "money stays in the US" (which is meaningless -- income has no borders).

If you are Cdn resident, your cap gains are cdn-sourced.

yt1023 · Post by **yt1023** » Wed May 04, 2011 9:20 am

Thanks for your response, nelsona!
I'm somewhat confused by this explanation of capital gains taxes on non resident aliens:
http://www.irs.gov/businesses/small/int ... 53,00.html

First it says that if someone is present >183 days/year then they have to pay 30% tax on cap gains, then it talks about US source becoming foreign source for non resident aliens and thus exempt from taxes, but goes on to talk about tax homes and how that influences taxes.

Does this mean that if my husband's program ends in 2 years, my tax home is considered the US, and thus I have to pay the 30%?

nelsona · Post by **nelsona** » Wed May 04, 2011 9:46 am

The Canada-US treaty overrides this regulation. The cap gains of Cdn residents are Cdn-sourced.

yt1023 · Post by **yt1023** » Wed May 04, 2011 4:21 pm

One more question, I recall a part of the treaty that exempts any income under 10k of tax, but that part of the treaty expired after ~4 years residency in the US, and I was not allowed to claim it on the 5th year.

Does a similar expiration apply to the capital gains part of the treaty? If so does my previous time as F1 count towards the time?

nelsona · Post by **nelsona** » Thu May 05, 2011 7:44 am

Nothing in the treaty "expires". If you are a Cdn resident and earn under $10K US in wages, it is exempt from US tax.

The problem you faced was that you thought you had become US resident, and filed as such. Once you file a 1040, you give up any tax treaty benefits that are attached tonon-residents, in exchange for lower over-all taxrates.