If you are a non-resident alien selling US assets, the capital gains tax you owe depends almost entirely on what you sold. Gains on US real estate are always taxable at the same graduated rates a US citizen would pay, with 15% of the sale price withheld at closing under a law called FIRPTA. Gains on stocks, bonds, and most other investments are generally not taxed by the US at all, unless you were physically present in the country for 183 days or more during the year, which triggers a flat 30% tax on the net gain. Everything else in the non-resident capital gains tax rules is a variation on those two starting points.
Are You a Non-Resident Alien for This Purpose
The IRS treats every non-citizen as either a resident alien or a non-resident alien (NRA). You are a resident alien if you hold a Green Card or if your weighted physical presence in the US over three years reaches 183 days under the Substantial Presence Test. Everyone else is an NRA.1Internal Revenue Service. Nonresident Aliens
NRAs are taxed only on US-source income. For capital gains, sourcing depends on what you sold. Real property located in the US is always US-source. Personal property such as stocks and bonds is sourced to the seller’s tax home, so an NRA with a tax home abroad generally produces foreign-source gains that the US cannot tax.2Internal Revenue Service. Nonresident Aliens – Sourcing of Income
Selling US Real Estate: FIRPTA and Graduated Rates
The Foreign Investment in Real Property Tax Act, codified at Section 897 of the Internal Revenue Code, is the reason your real estate gain gets taxed at all. FIRPTA treats the gain as if you were running a US business, which forces it into the regular graduated income tax system rather than letting it escape as foreign-source income.3Office of the Law Revision Counsel. 26 USC 897 – Disposition of Investment in United States Real Property
The rates are the same as those for US citizens. If you held the property more than a year, the long-term rate is 0%, 15%, or 20% depending on the size of the gain and your other US taxable income. If you held it a year or less, the gain is taxed at ordinary income rates from 10% to 37%. You report the sale on Schedule D attached to Form 1040-NR and can deduct expenses like selling costs and depreciation adjustments to arrive at the net gain.4Internal Revenue Service. Topic No. 409, Capital Gains and Losses
A “US real property interest” is broader than most sellers expect. It covers land, buildings, mines, wells, and natural deposits in the US or the US Virgin Islands. It also covers stock in a domestic corporation if 50% or more of that corporation’s assets were US real property during the shorter of your holding period or the five years before the sale. There is a carve-out for publicly traded stock: if any class of the company’s stock is regularly traded on an established securities market and you held 5% or less of that class (10% for REITs), the sale is exempt from FIRPTA.5Internal Revenue Service. Exceptions From FIRPTA Withholding
The 15% Withheld at Closing and How to Reduce It
Section 1445 requires the buyer to withhold 15% of the total sale price (not the profit) and send it to the IRS as a prepayment against your eventual tax bill. The buyer files Form 8288 and remits the money within 20 days of the transfer. If they miss the deadline, the buyer, not you, owes the penalties and interest.6Office of the Law Revision Counsel. 26 USC 1445 – Withholding of Tax on Dispositions of United States Real Property Interests7Internal Revenue Service. Instructions for Form 8288
Because 15% of the gross sale price often exceeds the actual tax on the net gain, most sellers end up owed a refund. A few common exceptions and adjustments reduce or eliminate the withholding at the outset:
- No withholding if the buyer is an individual buying the property as a personal residence and the price is $300,000 or less. The buyer or a family member must plan to live there at least half the days the property is used during each of the first two years after the transfer.
- 10% withholding, instead of 15%, if the buyer will use the property as a residence and the price is under $1,000,000.
- No withholding on the exempt publicly traded stock described above.
If none of those apply but the 15% still exceeds your projected tax, you can apply for a withholding certificate on Form 8288-B before or on the closing date. The IRS typically responds within 90 days, and while the application is pending the buyer can hold the withheld funds in escrow rather than sending them to the IRS.8Internal Revenue Service. Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests
Selling Stocks, Bonds, and Other Non-Real-Estate Assets
Gains on stocks, bonds, mutual funds, and cryptocurrency are generally not taxed by the US when the seller is an NRA. These gains take their source from the seller’s tax home, so if you live abroad, the gain is foreign-source and outside US taxing jurisdiction.2Internal Revenue Service. Nonresident Aliens – Sourcing of Income
This is the single largest advantage of NRA status for investors. A person living in London who sells Apple stock at a profit owes no US tax on the gain, even though the company and the brokerage may both be American.
The 183-Day Rule That Flips the Result
The exception is significant. If you are physically present in the US for 183 days or more during the tax year, your net US-source capital gains for that year are taxed at a flat 30% on the gross amount, with no deductions allowed. You can offset the gains only with US-source capital losses from the same year. The tax goes on Schedule NEC of Form 1040-NR rather than Schedule D.9Internal Revenue Service. The Taxation of Capital Gains of Nonresident Students, Scholars and Employees of Foreign Governments
This 183-day count is separate from the Substantial Presence Test used to decide residency. It is a straight count of actual days in the current year. Someone exempt from the Substantial Presence Test as a foreign student or diplomat can still be caught by the 183-day capital gains rule if they physically spend that much time in the country.
Different rules apply if the gains are effectively connected with a US trade or business you run. In that case, the graduated rates apply regardless of your day count, deductions are allowed, and the gain is reported on page one of Form 1040-NR.10Internal Revenue Service. Taxation of Nonresident Aliens
Selling a Partnership Interest
Selling an interest in a US partnership does not fall neatly into either category above. Under Section 864(c)(8), added in 2017, your gain is treated as effectively connected income to the extent the partnership holds US business assets. The tax applies to the lesser of your actual gain on the interest or your share of the hypothetical gain the partnership would realize if it sold all its assets at fair market value, limited to the portion allocable to US-connected assets.
Section 1446(f) requires the buyer to withhold 10% of the amount realized on the sale of the partnership interest and remit it to the IRS within 20 days of the transfer.11Office of the Law Revision Counsel. 26 USC 1446 – Withholding of Tax on Foreign Partners Share of Effectively Connected Income The rule catches NRAs who might otherwise avoid FIRPTA by holding US real property through a partnership. If the partnership has no US effectively connected assets, no US tax applies to the sale of the interest.
Tax Treaties Can Change the Result
The US has bilateral income tax treaties with dozens of countries, and many of them modify the capital gains rules. A treaty might exempt gains from the 30% flat tax under the 183-day rule, restrict US taxation of certain gains to the home country, or lower a withholding rate. The specific benefit depends on the treaty between the US and your country of residence.
Claiming any treaty benefit carries a disclosure obligation. Attach Form 8833 to your Form 1040-NR, describing the treaty provision, the income affected, and the legal basis for the position. Disclosure is required specifically when a treaty reduces tax on gains from US real property or modifies the rate on US-source dividends or interest.12Internal Revenue Service. Form 8833 – Treaty-Based Return Position Disclosure
Failing to file Form 8833 when required triggers a $1,000 penalty under Section 6712 ($10,000 for C corporations), assessed per failure. Even an NRA who would not otherwise need to file a US return must file one solely to make the disclosure.
Filing Form 1040-NR and Getting an ITIN
Any NRA with taxable US capital gains files Form 1040-NR. That includes FIRPTA sales, gains from selling a partnership interest, business-connected gains, and gains subject to the 30% flat rate under the 183-day rule. Filing is also how you recover overwithholding, which is common after a FIRPTA sale where 15% of the gross price exceeded the tax on the actual gain.13Internal Revenue Service. Instructions for Form 1040-NR
Effectively connected gains and their deductions go on Schedule D. Gains subject to the 30% flat rate go on Schedule NEC, which has no deductions.
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, submitted 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 including at least one with a photograph. Processing takes about seven weeks normally and stretches to nine to eleven weeks during peak filing season or when filing from overseas.14Internal Revenue Service. Instructions for Form W-7 If you are applying for a FIRPTA withholding certificate and do not yet have an ITIN, you can submit the W-7 along with the certificate request.15Internal Revenue Service. Applications for FIRPTA Withholding Certificates
Late Filing Consequences
The failure-to-file penalty is 5% of the unpaid tax for each month the return is late, 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.16Internal Revenue Service. Failure to File Penalty
A quieter consequence hits harder on real property sales. An NRA who fails to file a timely return for effectively connected income can lose the right to claim deductions against that income. The IRS can then assess tax on the gross amount rather than the net gain, which on a property with substantial basis multiplies the bill several times over. File the return, even late.
State Tax Is Separate
Federal FIRPTA rules run alongside, not instead of, state law. Many states impose their own withholding on real property sales by non-residents, sometimes at the state’s top income tax rate, which can exceed 13%. State withholding sits on top of the 15% federal withholding and creates its own filing obligation with the state where the property is located. Check the specific state before closing, because the combined withholding can consume a large share of the sale proceeds until refunds are processed.