An individual residing in the US in G-IV visa status (“G-IV Taxpayer”) is generally taxed as a nonresident alien, even though the individual may live in the US for a number of years and even have his/her principal residence here. Generally, when individuals who meet certain requirements sell their principal residences, they receive an exclusion from capital gains tax on the sale. The issue is whether the exclusion from capital gains tax extends to G-IV Taxpayers.
The G-IV visa is a non-immigrant visa granted to officials or employees of international organizations while stationed on official business in the US, as well as to members of their families. US authorities grant G-IV visas in order to permit staff members who are not citizens or permanent residents of the US to work at international organizations.
Generally, the sale of a residence is subject to capital gains tax in the US. However, if taxpayers are selling a principal residence and meet certain ownership and use tests, they can exclude $250,000 (married taxpayers can exclude $500,000) of capital gains on the sale. In order to claim the exclusion, a taxpayer must have owned the residence for at least 2 years (ownership test) and lived in it as his or her principal residence for at least 2 years (use test) during the 5 year period preceding the date of the sale.
The interesting twist for G-IV Taxpayers is that they are taxed as nonresident aliens in the US. Thus, generally for US income tax purposes, G-IV Taxpayers’ days present in the US are not counted to determine if they are substantially present here. However, despite their status as nonresident aliens, as long as G-IV Taxpayers meet the ownership and use tests described above, they qualify for the capital gains tax exclusion on the sale of a principal residence.
Claiming the exclusion can be complicated. Foreigners who own US property are subject to a special 10% withholding tax on the gross proceeds from the sale of any real property, principal residence or not. Thus, even though G-IV Taxpayers qualify for the capital gains exclusion, the purchaser of the residence is required by law to withhold 10% of the gross sales price and remit it to the IRS, unless the purchase price does not exceed $300,000.
G-IV taxpayers have three options. First, they can apply for and receive a withholding certificate from the IRS prior to the transfer of a principal residence. The certificate is notice to the purchaser that there is no (or a reduced rate of) withholding tax applicable to the sale. Second, if the 10% withholding tax was paid when the principal residence was sold, G-IV Taxpayers can apply for a withholding certificate and request an early refund. Third, as an alternative to the second option, G-IV Taxpayers can obtain a withholding certificate and apply for a refund when they file their US income tax returns for the tax year in which they sold their principal residence.
The rules regarding exclusion of capital gains on the sale of a G-IV Taxpayer’s principal residence apply equally to foreign diplomats, consular officers, foreign students, or scholars visiting the US in the A, F, J, M, or Q non-immigrant categories.