I understand that nonresidents (or foreigners)
who want to sell a house are subject to some tax withholding. I
also understand that with U.S. citizens, if certain conditions are
met, the first $500,000 of capital gains is exempt from federal
capital gains taxes.
My question is: If I am a U.S. resident (i.e., a green
card holder, but not quite a citizen yet), am I subject to withholding
-- just like foreigners -- or will my case be treated as if I am
an American citizen (and thus enjoy the capital gains tax exemption)?
I am filing a 1040 every year as a U.S.
Thanks for your help.
Immigration and tax laws differ on their definition
of "resident." A person is a resident for income tax purposes
if he has a green card or resides substantially in the United States,
regardless of his immigration status. An individual can be here
illegally and will be considered a resident for income tax purposes
and an illegal alien for immigration purposes. If you're a resident
with respect to income tax, you are treated the same as a citizen
for income tax purposes with the same responsibilities, obligations
and advantages as a citizen.
An individual is a nonresident alien for income tax
purposes if he does not have a green card and does not reside in
the Unites States substantially. A nonresident alien is subject
to different rules on the sale of a residence in the United States.
Since a nonresident alien, by definition, does not reside in the
United States, his principal residence cannot be in the United States.
Accordingly, he cannot claim an exclusion of $500,000 on the sale
of a principal residence.
The purchaser of a property that is owned by a nonresident
alien has a withholding obligation on the purchase. Technically,
all sellers of real property have to provide an affidavit that they
are not nonresident aliens for income tax purposes or they are subject
to withholding. An exception exists for a buyer of a property that
is $300,000 or less and will be occupied by the buyer as a principal
Accordingly, since you are a resident for income
tax purposes, you are not subject to withholding and can claim the
$500,000 exclusion, provided you are otherwise entitled to the exclusion
(in other words, you meet the two-year ownership and use tests,
you are married, and you file a joint return).