Moved out of US - 1040 or dual status with 1040NR

[bsp25]

Hi,

We moved from US to India in May 2024 after working for more than 10 years, both of us under H1b status. We had been filing US taxes (1040 MFJ) before the move. We didn’t obtain any sailing clearance from IRS before our departure as I wasn’t aware. We have our 401ks and other investments in US. We will be a resident alien in 2024 and non-resident alien for 2025. Since we have been working in India after our move, I am not sure how to file US taxes for 2024.

I thought I need to file 1040 for 2024 as in the past, report all our Indian income and then claim foreign tax credit when filing Indian taxes. But some have suggested filing under dual status (1040 & 1040-NR) for 2024. Which option is correct? I am not sure how to divide our US investment income between 1040 and 1040-NR if I need to file both and no option of MFJ for 1040-NR. I am planning to call IRS and also talk to my local CA for clarification. Any advice here is appreciated.

[pk]

@bsp25 , 

assuming that your H-1s have run out and that  you  told  USCIS / Immigration that you are leaving the country for good,  till you close the loop with IRS, they would assume that you are an RA.  See this --

Departing alien clearance (Sailing permit) | Internal Revenue Service

In general IRS' interest is to make sure that  it can collect all taxes due  for the work years. And since you will be termed long-term resident,  IRS will want to be assured that  it can collect  on  "tax advantaged", delayed tax etc. type of incomes.  Thus your 401s / pensions contributions etc. would come into focus.

My suggestion would be  ( just to buy time to get things settled  & absent any other contravening facts  that is not listed in your post ), is to file as Resident for the year 2024,  use FEIE to exclude  US taxes on your foreign incomes.  Then separately file  follow the instructions  in the ref. above  ( form 1040-C etc. ).   This has the advantage of  1. use of  Standard deduction,  only 1040 filing and  allowing 2025 to stand alone  as NRA ( with earnings  from US, if any ).

Is there more I can do for you --- if so please add to your PM.

Namaste ji

[bsp25]

Thanks for the response. Filing only 1040 makes sense. I will need to figure out how to get clearance after leaving the US.