Capital gains tax for nonresident aliens: US stocks, property & FIRPTA

Most nonresident aliens do not owe US capital gains tax merely because they sell ordinary US stocks, but sales of US real estate are generally taxable and commonly trigger FIRPTA withholding. A separate 183-day rule can impose a 30% tax on certain net US-source capital gains when a nonresident is physically present in the United States for at least 183 days during the tax year.

The rules for capital gains tax and nonresidents depend on the asset, where the gain is sourced, whether it is effectively connected with a US trade or business, and treaty provisions. The IRS specifically addresses capital gains of certain nonresident aliens, including the 183-day rule.

For the capital gains tax for a nonresident alien, the first question is usually not the holding period. It is whether US law treats the gain as taxable in the United States at all. That distinction is central to NRA capital gains tax treatment for the 2025 tax year.

This guide focuses on the following 3 practical points:

• Who this is for: nonresident aliens selling US stocks, US real estate, REIT interests, partnership interests, or other investments.
• Assets covered: portfolio securities, direct US property, REITs, partnerships, mutual funds, and foreign investments.
• Forms that may matter: Form 1040-NR, Forms 8288 and 8288-A, Form 8288-B, Schedule NEC, and in limited treaty situations Form 8833.

Do nonresidents pay capital gains tax in the US?

Yes, but not on every gain. For 2025, nonresident aliens commonly owe US tax when they sell US real property, realize certain effectively connected gains, or spend at least 183 days in the United States and have net gains that are already treated as US-source under the applicable sourcing rules.

The IRS rules on sourcing income for nonresident aliens matter because the location of a broker, exchange, or company does not by itself determine the source of every capital gain. Personal-property gains are generally sourced by reference to the seller’s tax home or residence, subject to statutory exceptions.

The following 4 paths cover the most common results:

• US real estate: A foreign seller is usually subject to US tax on the gain, and FIRPTA generally requires withholding at closing.
• Ordinary US portfolio stock: A nonresident who is outside the United States and whose gain is not effectively connected with a US trade or business will commonly have no US tax on the stock gain.
• 183 or more days in the United States: Section 871(a)(2) can impose 30% tax, or a lower treaty rate, on net US-source capital gains.
• Effectively connected income: Capital gains that are effectively connected with a US trade or business can be taxed under the rules applying to ECI. In limited circumstances, foreign-source income can also be treated as ECI.

A simple decision tree works this way: selling US real estate points first to FIRPTA; selling ordinary US stock points first to the source and ECI rules; and spending at least 183 days in the United States requires an additional Section 871(a)(2) check. Physical presence does not automatically convert every foreign or portfolio gain into a US-source gain.

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At a glance: NRA capital gains tax by asset type

The tax result differs by asset. For 2025, direct US real estate is normally taxable under FIRPTA, while ordinary portfolio stock held by an NRA abroad is commonly outside US capital-gains taxation unless an ECI, sourcing, or 183-day exception applies.

The key rule is that 183 days of US presence does not by itself turn a foreign-source gain into a US-source gain.

 

Usually taxable: direct US real estate and certain ECI gains.

Usually not taxable: ordinary portfolio gains that are foreign-source and not effectively connected.

Withholding only: a withholding amount can be collected before the final tax is known, particularly under FIRPTA or Section 1446(f).

Who is a nonresident alien for US tax purposes?

A person is usually a nonresident alien for 2025 if they are neither a US citizen nor a resident alien under the green card test or substantial presence test. Residency can change during a calendar year, so an individual can also be a dual-status alien with separate resident and nonresident periods.

A lawful permanent resident generally remains a resident alien until green-card status ends under the applicable tax rules. Abandonment, rescission, or a final administrative or judicial determination can affect the termination date, which may create a dual-status year.

The substantial presence test normally looks at days in the United States over a 3-year period. See TFX’s substantial presence test guide for foreign nationals for the weighted-day formula and exceptions.

Students and other visa holders should not assume every F- or J-visa day is automatically excluded. An F-1 student is generally an “exempt individual” for purposes of the substantial presence test for no more than 5 calendar years unless a specific exception applies.

The distinction matters because a resident alien is generally taxed on worldwide income, while a nonresident alien is principally taxed under the US-source and ECI rules.

 

US citizenship follows a different system from alien residency. TFX explains the distinction in its guide to US citizenship-based taxation.

How the US capital gains tax works for nonresident aliens

The US tax result for a capital gain usually requires 4 checks: identify the asset, determine the source and the seller’s residency status, check ECI and treaty rules, and then determine whether withholding or a Form 1040-NR filing is required. Real property follows a different path from an ordinary portfolio security.

For capital gains tax for a nonresident alien, personal-property sourcing is especially important. A stock in a US corporation does not automatically produce a US-source capital gain merely because the issuer or brokerage account is in the United States.

The following 4 checks should be completed before calculating tax:

1. Identify the asset. Direct US real estate is treated differently from shares, partnership interests, REITs, and foreign investments.
2. Determine source and tax status. Personal-property gains are generally sourced under the seller-residence rules, subject to exceptions such as gains attributable to a US office or fixed place of business.
3. Check ECI and treaty rules. Read TFX’s explanation of effectively connected income for nonresident aliens when a US trade or business is involved.
4. Separate withholding from final tax. FIRPTA and Section 1446(f) can require money to be withheld before the final income-tax liability is calculated.

A US real-estate seller may have 15% of the amount realized withheld at closing even though the actual tax is based on taxable gain. A portfolio investor, by contrast, can sell US shares without sale-proceeds withholding and still need a separate analysis of source, ECI, presence, and treaty rules.

A practical timeline is: sale or transfer → withholding, if required → withholding forms → Form 1040-NR, if required → credit or refund based on final tax.

Capital gains tax on US stocks for nonresidents

Most nonresident aliens who live outside the United States do not pay US tax merely because they sell shares of a US corporation in 2025. The conclusion changes if the gain is effectively connected with a US trade or business or falls within the rules for taxable net US-source gains after 183 days of US presence.

The following 4 assumptions commonly cause errors:

• A US brokerage account does not automatically make a stock gain US-source.
• A US-incorporated issuer does not automatically make an NRA’s sale gain taxable.
• The 183-day rule does not automatically re-source every gain to the United States.
• Dividends and stock-sale gains are different income categories and can have different withholding rules.

For an NRA living abroad, the brokerage’s US address is not the deciding factor for source.

 

 

The 183-day rule for NRA capital gains

A nonresident alien who is physically present in the United States for at least 183 days during the 2025 calendar year can face a 30% tax, or lower treaty rate, on net capital gains from US sources. The rule does not apply to every gain the person realizes worldwide.

The 183 days for this rule are counted during the current tax year. This is distinct from the substantial presence test, which uses a weighted 3-year formula to determine whether a person is a resident alien.

Based on our client scenario at TFX: an NRA arrives in the United States on January 1, 2025, and remains through July 3, a total of 184 days. If the taxpayer realizes $40,000 of net gains that are US-source and not ECI, a 30% Section 871(a)(2) rate would produce $12,000 of federal tax before any applicable treaty reduction.

The following 4 checks apply before using that result:

1. Count actual US presence during 2025.
2. Confirm the taxpayer remains a nonresident alien despite the presence.
3. Determine whether the gain is US-source under the applicable sourcing rule.
4. Check whether a treaty reduces the statutory 30% rate.

The 183-day capital-gain rule and the substantial presence test answer different questions. A taxpayer should not substitute one test for the other.

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Capital gains tax on US property sales for nonresidents

The capital gains tax on property sales for nonresidents starts with FIRPTA because a foreign seller’s disposition of a US real property interest is generally taxable in the United States. For most taxable transfers, the buyer withholds 15% of the amount realized even though the seller’s final tax is calculated later on Form 1040-NR.

TFX’s guide to FIRPTA for foreign property sellers explains the basic withholding system. The IRS likewise confirms that US real property gains of nonresident aliens are subject to US tax.

The following 5 closing-stage steps normally matter:

1. The seller and buyer determine whether the seller is a foreign person for FIRPTA.
2. The closing agent calculates the amount subject to withholding under the applicable rate or exception.
3. The buyer, as withholding agent, is legally responsible for required FIRPTA withholding.
4. Forms 8288 and 8288-A are prepared and sent with the withholding payment, normally by the 20th day after the transfer.
5. The seller later reports the taxable gain on Form 1040-NR and claims credit for the FIRPTA amount withheld.

The buyer can use the IRS’s FIRPTA withholding eligibility tool to check whether withholding applies. TFX also explains the buyer’s reporting obligations in its Form 8288 guide.

Closing timeline: contract signed → foreign-status/FIRPTA review → closing and withholding → Form 8288/8288-A remittance → seller receives stamped Form 8288-A → Form 1040-NR reports gain and claims credit.

 

 

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Primary residence exclusion for nonresidents

A nonresident alien can potentially use the Section 121 home-sale exclusion if the statutory ownership and use tests are met. The normal individual limit is up to $250,000 of qualifying gain, while the $500,000 joint-return limit depends on satisfying the married-filing-jointly requirements and is not ordinarily available to a standard Form 1040-NR filer.

The main test generally requires owning and using the property as a principal residence for at least 2 years during the 5-year period ending on the sale date. The IRS’s home-sale capital-gain rules provide the basic Section 121 conditions.

The following 4 questions should be answered before claiming an exclusion:

• Did the seller own the home for at least 2 of the 5 years before sale?
• Did the seller use it as a principal residence for at least 2 of those 5 years?
• Was another Section 121 exclusion claimed during the prior 2-year period?
• Is the seller actually eligible for the filing status required for any claimed $500,000 joint exclusion?

Based on our client scenario at TFX: an NRA purchased a US home for $500,000, lived in it as a principal residence for 3 years, and sold it for a $200,000 taxable gain before considering Section 121. If the ownership and use tests are met and no disqualifying rule applies, the gain can fall within the $250,000 individual exclusion.

Read TFX’s Section 121 home-sale exclusion guide before assuming that former US residence alone is enough to qualify.

FIRPTA withholding rates and exemptions

FIRPTA withholding is generally 15% of the amount realized on a foreign person’s disposition of a US real property interest. A qualifying buyer-residence transaction can reduce withholding to 10% when the amount realized is above $300,000 but no more than $1 million, while qualifying residence purchases of $300,000 or less can have 0% withholding.

The following 4 paths can change the normal closing calculation:

• A qualifying buyer-residence purchase of $300,000 or less can be exempt from withholding.
• A qualifying buyer-residence purchase above $300,000 and no more than $1 million can use a 10% rate.
• An IRS withholding certificate can authorize reduced or zero withholding when the standard amount exceeds the expected maximum tax liability.
• Certain nonrecognition transactions, including properly structured Section 1031 exchanges, can affect withholding if all requirements and notices are satisfied.

The standard 15% applies to the amount realized, not merely to the seller’s profit, and it is not automatically the seller’s final income tax.

 

TFX explains the conditions for a Section 1031 like-kind exchange involving rental property. A seller should not assume that reinvesting proceeds by itself satisfies the Section 1031 or FIRPTA rules.

FIRPTA withholding vs actual capital gains tax

The capital gains tax on property sales for nonresidents is calculated from taxable gain, while FIRPTA normally withholds a percentage of the amount realized at closing. The two figures can differ sharply, which is why a foreign seller can be entitled to a refund after filing Form 1040-NR.

A 15% FIRPTA withholding amount is a prepayment mechanism – it is not a second tax and is not automatically the final liability.

 

Based on our client scenario at TFX: a foreign seller disposes of US property for $500,000. Standard 15% FIRPTA withholding is $75,000, but if the seller’s final federal tax on the taxable gain is $30,248, the seller can claim the $75,000 credit on Form 1040-NR and seek a $44,752 refund, subject to the complete return and IRS processing.

TFX’s Form 8288-B guide for reduced FIRPTA withholding explains the pre-closing certificate route.

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Forms used after a US property sale

A foreign seller may need Form 1040-NR and several FIRPTA forms for the same 2025 property transaction. For calendar-year taxpayers, the 2025 Form 1040-NR is generally due April 15, 2026, when the taxpayer received wages subject to US income-tax withholding, or June 15, 2026, when they did not – being physically abroad is not the test.

The following 4 forms commonly appear in filing order:

• Form 8288: the withholding agent reports and remits FIRPTA withholding.
• Form 8288-A: the withholding statement identifies the foreign seller and withheld amount.
• Form 8288-B: the seller or buyer can apply for a certificate reducing or eliminating withholding.
• Form 1040-NR: the seller reports the actual gain and claims credit for FIRPTA withholding.

For a normal FIRPTA sale, the withholding paperwork begins at closing, while the seller’s Form 1040-NR determines the final tax later.

 

A seller without a US taxpayer identification number should review the IRS’s ITIN guidance for foreign property buyers and sellers before filing the FIRPTA package.

Capital gains tax for foreign investors in US real estate funds, REITs, and partnerships

US capital gains tax for foreign investors can apply even when the investor never holds a deed to US property. REIT shares, interests in qualified investment entities, and partnership interests can fall within FIRPTA or Section 1446(f), depending on the structure, ownership percentage, testing period, and underlying assets.

A domestically controlled qualified investment entity is generally one in which foreign persons held less than 50% of value, directly or indirectly, throughout the applicable testing period. The testing period is the shorter of the 5-year period ending on disposition or the entity’s period of existence. The IRS’s definitions and procedures unique to FIRPTA describe the current QIE rules.

The following 3 investment structures need separate analysis:

• REIT interests: Publicly traded stock and domestically controlled QIE rules can create exceptions, but applicable ownership percentages and testing-period requirements must be checked.
• Partnership interests: A foreign partner’s sale can trigger Section 864(c)(8) gain and Section 1446(f) withholding even when the partner does not directly own US real estate.
• Fund structures: A fund can hold USRPIs, REIT interests, partnerships, or combinations of assets, so the investor’s documents and K-1 reporting matter.

The applicable withholding rule depends on what the investor owns legally, not merely on the fund’s marketing description.

 

Read TFX’s discussion of Section 1446 partnership withholding and its guide to Form 1065 and Schedule K-1 reporting before transferring a partnership or fund interest.

 

 

US partnership interests under Section 1446(f)

A foreign person selling an interest in a partnership can face Section 1446(f) withholding when part of the gain would be treated as effectively connected income under Section 864(c)(8). The general withholding rule is 10% of the amount realized, subject to regulatory certifications and exceptions.

This differs from FIRPTA on a direct property sale. FIRPTA focuses on a US real property interest, while Section 1446(f) applies to transfers of partnership interests when the partnership’s hypothetical asset sale would generate ECI allocable to the foreign transferor.

Direct property, REIT stock, and partnership interests can all create withholding, but they use different statutory rules and documentation.

 

Before a partnership-interest transfer, review the partnership agreement, the seller’s recent Schedules K-1, certifications supplied to the buyer, and information about US trade-or-business assets. A missing certification can cause withholding even when the eventual tax is lower.

Capital gains tax on foreign investments for nonresidents

US capital gains tax for foreign investors does not automatically apply to every gain from property outside the United States. Foreign-source investment gains of an NRA are commonly outside US taxation unless they are effectively connected with a US trade or business or another specific rule brings the income into the US tax base.

Foreign-source income can become ECI in limited cases, including when statutory US-office or business-connection requirements are met. This is different from saying that every foreign investment of a person doing business in the United States becomes taxable.

The following 4 asset categories should be reviewed separately:

• Foreign corporate shares and ETFs.
• Foreign mutual or pooled investment funds.
• Foreign partnership interests.
• Foreign real estate.

US-situs and non-US-situs assets can produce different results even when held in the same brokerage account.

 

TFX’s PFIC tax guide mainly addresses US persons rather than ordinary NRAs, but it is useful where residency status changes. See also TFX’s discussion of the US tax implications of foreign investing when a taxpayer becomes a US resident.

Dividends and interest are not capital gains. A nonresident can have no US tax on a stock-sale gain but still face US withholding on dividends from the same shares.

What capital gains tax rate applies to nonresident aliens?

There is no single capital-gains rate for every NRA transaction. For 2025, long-term effectively connected capital gain can qualify for the 0%, 15%, or 20% federal rate structure, while Section 871(a)(2) can impose 30% on qualifying net US-source gains of an NRA present in the United States for at least 183 days.

For a single filer, the 2025 long-term capital-gain thresholds are 0% through $48,350 of taxable income, 15% from $48,351 through $533,400, and 20% above $533,400 when those preferential rates apply. The IRS summarizes the federal capital gains and losses rules.

The long-term capital gain tax for a nonresident also depends on the type of gain. Unrecaptured Section 1250 gain can be taxed at a maximum 25% rate, and qualifying collectibles gain can be taxed at a maximum 28% rate.

The 2025 rate follows the tax character of the gain – it is not determined merely by the taxpayer’s NRA status.

 

TFX provides more detail on capital gains and losses and the applicable tax rates.

When does a nonresident need to file a US tax return for capital gains?

A nonresident alien generally files Form 1040-NR when required to report taxable ECI, FIRPTA property gain, or another taxable capital-gain item. An NRA engaged in a US trade or business can also have a filing obligation even when the business produces no taxable ECI for the year.

The following 4 events commonly point to a 2025 Form 1040-NR:

• You sold US real property and need to report the gain or claim FIRPTA withholding.
• You have capital gain that is effectively connected with a US trade or business.
• You are subject to the 183-day rule on taxable net US-source capital gains.
• You are otherwise engaged in a US trade or business and the Form 1040-NR filing rules apply.

Withholding does not replace the annual return when a return is required. FIRPTA withholding can exceed or fall short of final tax, so the return is where the seller reports the gain and claims the credit.

Read TFX’s Form 1040-NR filing guide for filing mechanics. If residency classification is uncertain, compare Form 1040 vs. Form 1040-NR before filing.

For calendar-year 2025 returns, the Form 1040-NR due date is generally April 15, 2026, for a taxpayer who received wages subject to US income-tax withholding and June 15, 2026, if the taxpayer did not. A treaty position requires Form 8833 only when the applicable disclosure rules require it.

Your capital gains may require Form 1040-NR. Taxes for Expats can prepare it.

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Can tax treaties reduce capital gains tax for nonresidents?

Yes. A US income-tax treaty can assign or limit taxing rights for particular capital gains, but relief depends on treaty residence, the asset, the applicable capital-gains article, and any saving-clause or limitation provisions. A treaty should be checked before assuming the statutory US rate controls.

Direct US real property is commonly preserved as taxable by the country where the property is located. Portfolio securities can receive different treatment, so treaty residence documentation and the exact article matter.

The following 3 treaty examples show why the text must be checked rather than applying one universal rule:

Treaty treatment differs by country and asset, and Form 8833 is required only for treaty-based return positions subject to its disclosure rules.

 

TFX’s US tax treaty guide explains how bilateral treaties interact with domestic law. If a treaty-based return position is being claimed, review TFX’s Form 8833 disclosure guide.

State tax considerations for nonresident capital gains

Federal exemption from a capital gain does not automatically mean a state will reach the same result. A nonresident who sells property or other assets connected to a state can have state income tax, nonresident withholding, or a separate state-return obligation in addition to the federal Form 1040-NR rules.

The following 4 items should be checked for the state where the asset or transaction is located:

• Whether the state treats the gain as state-source income.
• Whether nonresident withholding is required at sale.
• Whether a filing threshold or exemption applies.
• How excess state withholding is recovered.

TFX’s guide to state taxes and taxpayers living outside their former state explains why domicile and state-source income require separate analysis. California, for instance, has its own nonresident sourcing rules, covered in TFX’s California nonresident income-tax guide.

State rates, withholding thresholds, and refund procedures can change. Confirm the rule for the state and transaction year before closing or filing.

Common mistakes nonresidents make with capital gains tax

The most costly errors usually come from treating 1 withholding or residency rule as if it answered every tax question. For the 2025 tax year, FIRPTA, the 183-day rule, the substantial presence test, ECI, treaty relief, and state tax rules must be checked separately.

The following 6 mistakes deserve a specific review:

• Treating FIRPTA withholding as the final tax.
  How to avoid it: calculate the actual gain and file Form 1040-NR when required so excess withholding can be claimed as a credit.
• Missing the refund documentation.
  How to avoid it: keep Form 8288-A, closing statements, basis records, and taxpayer-identification documents together.
• Assuming every investment gain follows the same rule.
  How to avoid it: classify stock, real estate, REIT, partnership, and foreign-investment gains separately.
• Confusing dividends with sale gains.
  How to avoid it: determine whether the payment is a dividend, interest payment, capital-gain distribution, or proceeds from a sale before applying a withholding rate.
• Treating the 183-day capital-gain rule as the substantial presence test.
  How to avoid it: run both tests independently because one determines a specific capital-gain rule and the other can determine resident-alien status.
• Waiting until the return is filed to obtain an ITIN.
  How to avoid it: where a taxpayer identification number is needed for FIRPTA relief or a refund claim, review the timing before closing. TFX’s Form W-7 and ITIN application guide explains the process.

Examples: how the NRA capital gains tax works

These 4 scenarios show how asset type, source, withholding, and physical presence can produce different results for 2025. Each starts with the transaction facts, applies the relevant rule, and separates withholding from the actual tax and filing result.

Scenario 1 – US stock sold while the NRA lives abroad

Based on our client scenario at TFX: a nonresident lives in France throughout 2025 and realizes a $25,000 gain from selling ordinary shares of a US corporation through a US brokerage account.

Facts: The taxpayer is outside the United States and the gain is not ECI.
Rule applied: Ordinary portfolio stock is not automatically taxable solely because the company or brokerage is US-based.
Withholding: $0 on the sale proceeds under the ordinary capital-gain rule.
Actual tax: $0 US tax on these facts.
Filing result: The stock gain alone would not ordinarily require Form 1040-NR.

Scenario 2 – US property with FIRPTA withholding

Based on our client scenario at TFX: an NRA sells US real estate for $600,000, and the standard 15% FIRPTA rate applies.

Facts: $600,000 amount realized; taxable gain is calculated separately.
Rule applied: FIRPTA applies to the US real property disposition.
Withholding: $90,000.
Actual tax: Determined on Form 1040-NR from the gain, holding period, depreciation, and other relevant tax items.
Filing result: Form 1040-NR reports the transaction and claims the $90,000 withholding credit.

Scenario 3 – Former principal residence

Based on our client scenario at TFX: an NRA sells a former US principal residence with $180,000 of gain after owning and using it as a main home for at least 2 of the prior 5 years.

Facts: The seller appears to meet the basic ownership and use periods.
Rule applied: Section 121 can potentially exclude up to $250,000 for an eligible individual.
Withholding: FIRPTA must still be analyzed separately because income-tax exclusion and withholding are not identical questions.
Actual tax: Potentially $0 federal tax on the $180,000 gain if all Section 121 requirements are met.
Filing result: Filing may still be needed to report the transaction or recover withholding.

Scenario 4 – NRA present in the United States for 183 days or more

Based on our client scenario at TFX: an individual remains an NRA but spends 190 days in the United States during 2025 and has $30,000 of net capital gain that is confirmed as US-source.

Facts: Physical presence exceeds 183 days.
Rule applied: Section 871(a)(2) can impose a 30% rate absent treaty reduction.
Withholding: Depends on the transaction and payer.
Actual tax: $9,000 before a treaty reduction.
Filing result: Form 1040-NR is required to report the taxable gain.

An F-1 student scenario needs one additional residency check: student days are not automatically excluded forever. The substantial-presence exemption is generally limited to 5 calendar years unless an applicable exception allows continued exempt-individual treatment.

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