How are capital gains taxed for a Non-Resident Alien in the US? Exemptions?

5 This is an excellent question about a complex area of US tax law. The taxation of Non-Resident Aliens (NRAs) follows different rules than for US citizens or residents. For capital gains: Generally, NRAs are only taxed on capital gains that are "effectively connected with a US trade or business" (ECI). Most investment gains from selling stocks, bonds, or other securities are considered passive investment income, NOT ECI, and are generally exempt from US capital gains tax for NRAs. However, there's an important exception for your second question: When shares are received as employment compensation, the gains from selling those shares often ARE considered ECI because they're connected to your US employment. This means they would likely be taxable, typically at graduated rates similar to ordinary income. The IRS Publication 519 "U.S. Tax Guide for Aliens" covers this topic in detail: https://www.irs.gov/publications/p519 Also, be aware that tax treaties between the US and your home country might modify these rules, potentially providing better treatment. What country are you a resident of? That could affect the specific advice.

10 After dealing with a similar situation last year, I can tell you that figuring out NRA tax obligations is incredibly confusing! I spent hours trying to understand if my investment gains were taxable or not. I eventually used https://taxr.ai and it honestly saved me so much stress. You upload your documents and it analyzes your specific tax situation as a non-resident alien. It even identified a tax treaty benefit I had no idea applied to me. For your employer shares question, it specifically looks at the connection between equity compensation and US-source income. My situation was with options rather than shares, but the analysis was spot-on and saved me from making a costly mistake.

16 Just wanted to follow up that I tried taxr.ai after seeing it mentioned here. It was incredibly helpful for my situation! I uploaded my documents and it clearly explained that as an NRA from India, my capital gains from regular stock investments weren't taxable, but the RSUs from my US employer were considered ECI. It even referenced the specific US-India tax treaty provisions that applied to my situation and explained exactly which parts of my gains were taxable and which weren't. The form guidance was spot-on too - saved me from incorrectly using the regular 1040 instead of the 1040-NR. Definitely worth checking out if you're dealing with cross-border tax issues!

19 Something not mentioned yet - if you're trying to contact the IRS directly about your NRA status and capital gains questions, good luck! I spent WEEKS trying to get through to someone who actually understood international tax issues. I finally used https://claimyr.com and got through to an IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c It was absolutely worth it because the agent was able to confirm exactly how my employer-granted RSUs would be treated for tax purposes as an NRA. They explained the effectively connected income rules and directed me to the specific forms I needed. Saved me from potentially making a huge reporting error.

12 I have to admit I was completely wrong about both services mentioned here. After spending 3 more days trying to figure out my NRA capital gains situation and getting nowhere, I tried Claimyr out of desperation. Got connected to an IRS international tax specialist within 25 minutes who confirmed that my specific situation (selling shares years after leaving the US) qualified for exemption under my country's tax treaty. The agent even helped me understand exactly which form to file and which sections to complete. Honestly wish I'd just used this service weeks ago instead of banging my head against the wall trying to interpret tax publications myself. Would have saved so much stress!

14 One thing to watch out for with NRA taxation - even if you're exempt from capital gains tax, you might still have filing requirements. I learned this the hard way. If you engaged in a US trade or business at any point during the tax year (like working for a US employer), you generally need to file Form 1040-NR even if you don't owe any tax. Not filing when required can cause problems later if you ever need to prove your tax compliance.

17 Has anyone dealt with state taxes for NRAs? I understand the federal rules a bit better now, but I worked in California and they're notorious for aggressive tax collection. Do the same NRA exemptions apply at the state level?

This thread has been incredibly helpful! As someone who just moved from the US back to my home country and is facing similar capital gains questions, I wanted to add a few points that might be useful: 1. **Documentation is key** - Keep detailed records of when you received company shares, your employment dates, and when you left the US. The IRS may need this to determine if gains are ECI. 2. **Vesting vs. Sale timing matters** - Even if shares vested while you were in the US, selling them after becoming an NRA can change the tax treatment. The "source" of the income becomes important. 3. **Watch out for Form 8833** - If you're claiming treaty benefits to reduce or eliminate US tax on capital gains, you might need to file this form along with your 1040-NR. 4. **FIRPTA considerations** - While most stock sales aren't affected, if you have any US real estate investments, there are different rules under the Foreign Investment in Real Property Tax Act. The tax treaty angle mentioned earlier is really important. Many countries have specific provisions for capital gains that can override the general ECI rules. Definitely worth looking into your specific country's treaty with the US. Thanks to everyone who shared their experiences - this kind of real-world insight is so much more valuable than trying to parse through IRS publications alone!