Income Source Rules
What do income source rules determine?
If the U.S or foreign country has nexus to the income
What is FDAP income?
fixed, determinable, annual, or periodical
partly source income to the U.S.
Real Property Source Rules
- Gain or loss from the disposition of U.S real property or stock of a U.S real property holding corporation is U.S source.
- Gain from sale of real property located outside of the U.S is foreign source
define nonresident
doesn't have a "tax home"
purchase inventory in Sweden and it is sold in the U.S. for a gain
U.S. source income
Gain from the sale of purchased inventory is sourced where the sale takes place
For non-business income, what percentage of withholding tax is applicable to U.S. source income?
30%
A student from a Hong Kong university receives a scholarship to study in the U.S. (Scholarship is funded by Hong Kong university)
Source of the payment?
foreign source income
Intangible Property Source Rule
if the gain on sale is contingent on the use, productivity or disposition of the intangible - gain is sourced where property is used
if not - sourced where the residence of seller
List three examples of personal property.
- purchased inventory
- produced personal property
- intangible property
- depreciable personal property
Foreigner sells a patent to a U.S. purchaser for $900,000 plus 5% of gross sales proceeds.
How will this income be sourced?
The 5% of gross sales proceeds = U.S. source income
any gain from the $900,000 = foreign income
How is gain from a sale sourced when a nonresident maintains an office or fixed place of business within the United States and the gain from a sale is attributable to that location
the gain is treated as U.S. source income.
2 components of depreciable personal property for tax purposes
- depreciation / amortization adjustments
- appreciation
Business machinery is purchased for $20,000 and $5,000 of depreciation deductions were taken and reduced U.S. source income
Machinery sold for $30,000
What is the gain? How is depreciation deduction sourced?
gain = $15,000
sourced as U.S. income