Becoming a Lawful Permanent Resident mid-year tax implications

[ggavish]

Hello,

Say I receive an immigrant visa abroad at a US embassy, say in February, then I sell my house (my only residence I have lived in for 25 years) and then I move to the US say in July of the same year.

I understand I only become a lawful permanent resident on the day I enter the US, right?

Since I'll be a resident for tax purposes for the remainder of the year (July to December), I will need to file a tax return.

Question: Will I be taxed for the sale of my home in the foreign country before I entered the US and became a permanent resident?

[pk]

@ggavish , any earnings, ) active , passive, etc. etc. ) that  are foreign  ( i.e. Foreign sourced )  and while you are a Non-Resident Alien  ( generally living  in foreign land and not a  US Person ), US has no right to tax your income.

This general statement.  If you need more specific answer , please provide more details about  your tax-home country, your immigrations status current  (i.e. before entering US ) , that of your spouse ( if he/she is a US person etc. ).  etc. etc.

I will await your answer(s).

[ggavish]

@pk Thank you for the quick response!

This question is about a couple living in Israel with an Israeli citizenship, and currently both have no immigration status in the US (aside from a tourist visa). They are both applying for a green card (permanent residency in the US). 

Once they receive the immigration visa from the US Embassy, they plan to sell their home and move to the US.

The concern is whether the home sale, or any other income earned in Israel during that year prior to entering the US, will be taxed in that calendar year.

Thanks!

[pk]

@ggavish , using the general principle of  taxation by US for Non-Resident Aliens  (NRA)and specifically  based on US-Israel Tax Treaty, a property situated in Israel and  disposed of by an Israel Person is taxable ONLY  by Israel .  Even if the Israel citizen, becomes a US Person ( Citizen / GreenCard / Resident for Tax Purposes )  Israel  still get to tax the  proceeds / income from alienation of real property situated in Israel.  US may also tax  a US Person but the double-Taxation clause will come into effect and thereby reduce the tax bite.

May I also suggest that if at all possible the  NRAs enter the USA  by the 31st. of December of the year -- that way for the following year  they will be able to use Standard Deduction  ( instead of  Itemized deduction because of  short tax year ) --- the residency of a  Green Card holder starts on the first  full day of presence in the USA.

Is there more I can do for you ?

If you are satisfied  with the answer  then you are welcome to  upvote and/or  accept the answer  .   If not tell me how I can earn that 

pk

[ggavish]

@pk Again, thank you for the prompt and detailed response.

I do have one more question. What if the couple is exempt from paying taxes on the sale of the property in Israel. Does it still apply that the couple will not need to pay taxes in the US for the proceeds of the sale in Israel?

You said "US may also tax  a US Person but the double-Taxation clause will come into effect and thereby reduce the tax bite."

In that case, the couple did not pay taxes on the sale in Israel because they were exempt. Will they need to pay in the US once they become permanent residents?

Thanks!

[pk]

@ggavish ,   I would strongly urge then, to dispose off the asset before entering USA with the GreenCard -- this way US will not tax the gain and only Israel can under its own rules.

Is there more I can do for you ?

[ggavish]

@pk So just to clarify, you're saying that until they enter the US, and become permanent residents, US will not tax any gains, correct?

[pk]

@ggavish , correct.

Is there more I can do for you ?

pk

[ggavish]

All good. Thank you for the help!!