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Resident by Accident?

Updated: Jun 24, 2020

Yes, it is actually possible to be considered a US tax resident even if you are not a US resident for immigration purposes. Doing so by accident will generally not lead you to any favorable results, as I am about to explain.

Let's start from the basics. The US has one of the widest definitions of tax residency in the world. It is so wide, to the extent that all US citizens are considered tax residents, even those who never stepped foot on US soil in their lives! US tax residents are required to report their worldwide income and their foreign financial accounts annually. Permanent residents (Green Card holders) are also considered US tax residents. Nonresidents, however, must report only their US source income (such as rental income from a US real estate property) to the IRS.

Another category of US tax residents includes neither US citizens nor Green Card holders, rather individuals who are physically present in the US for more than 30 days in the current year, and a total number of days based on a 3 year formula.

If you want to determine tax residency for year 20X9, and TD represents the total number of days spent in the US during that year (including partial days, such as landing and take-off), the formula is as follows:

(TD 20X9)+(TD 20X8 x 1/3)+(TD 20X7 x 1/6). If the result is more than 183, you are deemed a US tax resident for year 20X9.

Here are some examples of US tax residents in 20X9 based on the physical presence test formula:

Example 1: Danny lives in Australia. In year 20X9 he made his first ever trip to the US and spent 185 days touring the country.

Example 2: Harriet lives in England, but her son lives in the US. In the years 20X7-20X8-20X9 she visited her son for a total of 4.5 months each year.

I will just point out that are some exceptions to this rule for certain visa holders such as students and crew members, allowing them to exclude days from the calculation.

Foreign investors in US real estate who receive US rental income, but have no other US sourced income, must file Form 1040NR and report only that rental income. However, if an investor visits the US for too many days as described above, and becomes an accidental resident, the correct form would be Form 1040, and the requirement would be to report any and all income worldwide.

I'm not going to tell you if and when to travel to the US, but I do want you to be aware of the residency issue so that whatever you decide won't be done by accident.

Let me know your thoughts in the comments section below (quick login required). If you have questions regarding your specific case, please feel free to contact me directly and I will be happy to discuss.

Kenneth D. Kastner, CPA (Isr), EA, CAA is the Founder and CEO of Kastner Tax Solutions LLC, a boutique online tax firm specializing in US real estate tax services for foreign investors worldwide. He can be contacted directly via his website or mobile app by Wix.

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