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June 13, 2013 - Phil Hodgen

Step up in basis for nonresident’s assets in irrevocable trust

What “basis” is

One of the continuing mysteries of life involves the concept of “basis”. Think of basis as your acquisition cost. This is essential in calculating your capital gain tax after selling an asset. Capital gain is the difference between the sale price and your acquisition cost. The higher your basis — or acquisition cost — for an asset, the lower your capital gain (and therefore capital gain tax) will be.

Here is an example:

A person bought a piece of land 20 years ago for $100,000, and now it is worth $1,000,000. If that person sells the real estate today, the capital gain would be $900,000 ($1,000,000 received from sale minus $100,000 acquisition cost).

... continue reading
Nonresidents with US Activities Tax and Trusts
April 3, 2013 - Phil Hodgen

Form 1040NR Filing, Tax Payment Deadlines

I received an email from a CPA friend of mine today. She and another person in her office disagreed on a seemingly simple question. They were preparing a Form 1040NR for a nonresident alien and wanted to get an extension of time to file the tax return. They both agreed that Form 4868 should be filed before June 15 to get the extension of time to file a timely tax return. But they disagreed on making the tax payment: is the tax payment due on April 15 or June 15?

I was about to reflexively answer her question when I thought to myself, “Hang on.... continue reading

Nonresidents with US Activities
August 1, 2012 - Phil Hodgen

Basis step-up on assets inherited from nonresident

Yes, I’m back from more than a week off the grid in the Quetico Provincial Park, paddling and portaging. This was a Boy Scout trip with my son’s troop, starting from the Charles L. Sommers Wilderness Canoe Base. Who knew that going canoeing involves carrying extremely heavy stuff over steep, treacherous portages in the rain? I’ve already signed up for next year’s trip–a 12 day high country backpacking extravaganza at Philmont.

People keep asking me, uh, where’s your brother? (YouTube, turn it up loud).

No, actually, people keep asking me about whether they get a step up in basis for foreign assets inherited from a nonresident/noncitizen decedent.... continue reading

Nonresidents with US Activities
April 21, 2012 - Phil Hodgen

Property you acquired before coming to the USA

This is a quick little blog post to answer a recurring question for many people out there.  It came up in the course of some work I am doing right now.

Situation

You are a nonresident of the United States.  Thirty years ago you bought a piece of land in your home country for US$10,000.  Now it is worth US$200,000.

You immigrate to the United States, then sell the land for its current value — US$200,000.

Question

Do you pay U.S. capital gain tax on the entire $190,000 of capital gain?

Answer

Yes.

Why

Just because you change status from nonresident to resident of the United States, you don’t change the U.S.... continue reading

Nonresidents with US Activities
April 17, 2012 - Phil Hodgen

Nonresidents’ U.S. bank interest earned to be reported to IRS

The IRS came out with their Regulations which tell banks that they must report interest earned by nonresidents.  Up to now, this was not done.  If a nonresident opened a bank account in the United States, the interest earned was not reported to the U.S. government.

The bank interest itself is not taxable in the United States.  These new Regulations do not change that.  These new Regulations merely force the bank to tell the U.S. government how much interest was earned, and the identity of the nonresident bank account holder.

Why?

The IRS is trying to force every foreign bank in the world to report the accounts of U.S.... continue reading

Nonresidents with US Activities