If you are a non-resident alien selling US assets, the non-resident capital gains tax you owe depends almost entirely on what you sold and how long you were in the country. Gains from US real estate are always taxable under a federal law called FIRPTA, at the same graduated rates US citizens pay, up to 20% for long-term holdings. Gains from stocks, bonds, mutual funds, and most other non-real-estate assets are generally not taxable at all, with one major exception: if you were physically present in the US for 183 days or more during the tax year, your US-source gains get hit with a flat 30% tax and no deductions.
The sections below walk through each situation, the withholding your buyer or broker takes at the time of sale, the treaty positions that may lower your bill, and the forms you have to file to get any of this right.
Who These Rules Apply To
You are a non-resident alien (NRA) for tax purposes if you are not a US citizen, do not hold a Green Card, and do not meet the Substantial Presence Test. NRAs are taxed only on income from US sources.1Internal Revenue Service. Nonresident Aliens For capital gains, source depends on the asset. Real property in the US is always US-source. Personal property like stocks and bonds is generally sourced to the seller’s tax home, so if your tax home is abroad, the gain is foreign-source and outside US taxing jurisdiction, subject to the exceptions below.2Internal Revenue Service. Nonresident Aliens – Sourcing of Income
US Real Estate: FIRPTA Makes the Gain Taxable
The Foreign Investment in Real Property Tax Act, codified at Section 897 of the Internal Revenue Code, is the central statute. It treats any gain or loss from selling a US real property interest as if you were running a US trade or business, which forces the gain into the graduated income tax system rather than letting it escape US taxation.3Office of the Law Revision Counsel. 26 USC 897 – Disposition of Investment in United States Real Property
“US real property interest” reaches further than houses and commercial buildings. It covers interests in land, buildings, mines, wells, and natural deposits in the US or US Virgin Islands. It also captures stock in a domestic corporation if 50% or more of its assets by fair market value consisted of US real property interests during the testing period. A carve-out spares most ordinary investors: if any class of the corporation’s stock is regularly traded on an established securities market and you held 5% or less of that class, the sale is exempt from FIRPTA. For REITs, the threshold is 10%.4Internal Revenue Service. Exceptions From FIRPTA Withholding
Because FIRPTA classifies the gain as effectively connected income, you pay at the same rates US citizens pay. Long-term gains on property held more than a year are taxed at 0%, 15%, or 20% depending on your taxable income. Short-term gains on property held a year or less are taxed at ordinary rates ranging from 10% to 37%. You report the gain, along with allowable deductions including depreciation recapture, on Schedule D attached to Form 1040-NR.5Internal Revenue Service. Topic No. 409, Capital Gains and Losses
One benefit NRAs get that US residents do not: the 3.8% Net Investment Income Tax does not apply to you. It only reaches investment income during any portion of the year you are treated as a US resident.6Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
FIRPTA Withholding at Closing
Section 1445 of the Code requires the buyer in any FIRPTA transaction to withhold 15% of the total amount realized (the sale price, not just the profit) and send it to the IRS. This is a prepayment against your eventual tax liability, not the tax itself.7Office of the Law Revision Counsel. 26 USC 1445 – Withholding of Tax on Dispositions of United States Real Property Interests The buyer must report and transmit the withholding on Form 8288 within 20 days of the transfer date. Missing that deadline exposes the buyer, not you, to penalties and interest.8Internal Revenue Service. Instructions for Form 8288
Several exceptions reduce or eliminate the 15%:
- No withholding when the buyer is an individual acquiring the property as a personal residence and the sale price is $300,000 or less. The buyer or a family member must plan to live there at least 50% of the days the property is in use during each of the first two years after the transfer.7Office of the Law Revision Counsel. 26 USC 1445 – Withholding of Tax on Dispositions of United States Real Property Interests
- The rate drops to 10% if the buyer will use the property as a residence and the price is between $300,001 and $1,000,000.
- No withholding on publicly traded stock regularly traded on an established securities market.4Internal Revenue Service. Exceptions From FIRPTA Withholding
If the 15% withholding would exceed your actual tax, which often happens on small gains or losses, you can apply for a withholding certificate on Form 8288-B before or on the transfer date. The IRS typically acts on these within 90 days. Once a timely application is filed, the buyer can hold the withheld funds in escrow rather than remitting them while the certificate is pending.9Internal Revenue Service. Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests
Stocks, Bonds, and Other Investments: Usually Tax-Free
Gains from selling stocks, bonds, mutual funds, and cryptocurrency are generally not taxable for an NRA. The source rule puts them at your tax home, so if you live abroad the gain is foreign-source and the US cannot reach it.2Internal Revenue Service. Nonresident Aliens – Sourcing of Income
The exception you need to watch is the 183-day rule. If you are physically present in the US for 183 days or more during the tax year, your net US-source capital gains (gains minus US-source capital losses from the same year) are taxed at a flat 30% on the gross amount. No deductions are allowed. These gains go on Schedule NEC of Form 1040-NR rather than Schedule D.
This 183-day count is not the Substantial Presence Test used to decide residency. It is a separate day count for this specific tax. A foreign student or diplomat who is exempt from the Substantial Presence Test can still be caught by the 183-day capital gains rule if they are in the country long enough.10Internal Revenue Service. The Taxation of Capital Gains of Nonresident Students, Scholars and Employees of Foreign Governments
A separate category: if you run a US business and sell assets used in that business, the gains are effectively connected income and taxed at graduated rates no matter how many days you spent in the country. These gains do get the benefit of deductions and are reported on page one of Form 1040-NR.11Internal Revenue Service. Taxation of Nonresident Aliens
Selling a Partnership Interest
Section 864(c)(8), added in 2017, treats your gain from selling a partnership interest as effectively connected income to the extent the partnership holds US business assets. You are taxed on the lesser of the gain on the interest itself or your share of the hypothetical gain the partnership would realize if it sold all its assets at fair market value, but only on the portion allocable to US-connected assets.
The buyer must withhold 10% of the amount realized under Section 1446(f) and transmit it to the IRS within 20 days of the transfer.12Office of the Law Revision Counsel. 26 USC 1446 – Withholding of Tax on Foreign Partners Share of Effectively Connected Income This closes a route NRAs might otherwise use to avoid FIRPTA by holding US real property through a partnership. If the partnership has no US effectively connected assets, there is no US tax on the sale.
Don’t Confuse Dividends With Capital Gains
Dividends on US stocks are treated very differently from gains on those same stocks. US-source dividends not connected to a US business are classified as fixed, determinable, annual, or periodical income (FDAP) and taxed at a flat 30%. Capital gains on the same stock are specifically excluded from FDAP and follow the rules above. A tax treaty often reduces the dividend rate, sometimes to 5% or 15%.13Internal Revenue Service. Characterization of Income of Nonresident Aliens
Treaty Relief and the Disclosure It Requires
The US has bilateral income tax treaties with dozens of countries, and treaties often modify the capital gains rules. A treaty may exempt gains from the 30% flat tax under the 183-day rule, reduce withholding on specific transactions, or assign exclusive taxing rights to your home country. What you get depends entirely on the specific treaty with your country of residence.
If you take a return position that relies on a treaty to reduce or eliminate US tax, you must attach Form 8833 to your Form 1040-NR. The form requires a description of the treaty provision, the specific income affected, and the legal basis for the position. Disclosure is required when a treaty reduces tax on gains from US real property or modifies the rate on US-source dividends or interest.14Internal Revenue Service. Form 8833 – Treaty-Based Return Position Disclosure
Skipping Form 8833 when required triggers a $1,000 penalty under Section 6712 ($10,000 for C corporations), per failure. If you would not otherwise need to file a US return, you still have to file one solely to make the treaty disclosure.
Filing: Form 1040-NR, ITIN, and Penalties
Any NRA with taxable US capital gains must file Form 1040-NR. That covers FIRPTA sales, business-connected gains, partnership interest sales, and gains caught by the 183-day rule. You also file if you want to claim a refund of overwithholding, which is common when the 15% FIRPTA withholding exceeded your actual tax.11Internal Revenue Service. Taxation of Nonresident Aliens Effectively connected gains go on page one and Schedule D with deductions and graduated rates. Flat-30% gains go on Schedule NEC with no deductions.15Internal Revenue Service. Instructions for Form 1040-NR
Getting an ITIN
If you do not have a Social Security Number, you need an Individual Taxpayer Identification Number (ITIN) before you can file. Apply on Form W-7 and submit it with the return that requires it. A passport is the simplest supporting document because it establishes both identity and foreign status by itself. Without one, you need at least two documents, with at least one bearing a photograph.16Internal Revenue Service. Instructions for Form W-7
Processing takes about seven weeks normally and stretches to nine to eleven weeks during peak filing season (January 15 through April 30) or when you file from overseas. If you need an ITIN for a FIRPTA withholding certificate, you can attach the W-7 to the certificate request and submit both together.17Internal Revenue Service. Applications for FIRPTA Withholding Certificates
Penalties and the Deduction Trap
Filing late costs 5% of the unpaid tax per month, up to 25%. If the return is more than 60 days late, the minimum penalty is $525 or 100% of the unpaid tax, whichever is less.18Internal Revenue Service. Failure to File Penalty
The quieter consequence is worse. If you fail to file a timely return for effectively connected income, you can lose the right to claim deductions against that income at all. The IRS can then assess tax on the gross amount instead of the net gain, which on a real property sale with substantial basis can multiply the tax bill several times over. File the return, even if it is late.
State Withholding Is Separate
Many states impose their own withholding on real property sales by non-residents, with rates that vary widely. Some require none; others withhold at their top income tax rate, which can exceed 13% in high-tax states. State withholding applies on top of the 15% federal FIRPTA withholding and creates a separate state filing. Check the rules of the state where the property sits before you close.