§ 8.7 Tax Planning Issues and Considerations

• Library: Rights of Foreign Nationals (OSBar) (2020 Ed.)

§ 8.7 TAX PLANNING ISSUES AND CONSIDERATIONS

§ 8.7-1 Before Arrival

Following is a list of issues affecting taxes that a nonresident should consider before arriving in the United States:

(1) The timing of the move should be planned. If the client comes to the United States midyear, he or she may not reach the higher graduated tax brackets in either country.

(2) The time gap in residency should be used. The period after the individual has given up residency in the home country and before U.S. residency commences (there can be a gap) should be used to recognize intangible sources of income, and potentially avoid tax in both countries.

(3) The nonresident should sell appreciated assets before becoming a U.S. resident because the United States will tax the entire gain using the original cost as the basis, even if the gain entirely accrued before the individual became a resident.

(4) Foreign nongrantor trusts should make distributions to beneficiaries before they become U.S. residents. The United States has disadvantageous rules on payouts of accumulated income.

(5) Installment sales should be made before becoming a U.S. resident. The United States can tax any payments made after becoming a U.S. resident, unless the individual elects out of the U.S. installment sale rules.

(6) Foreign real estate financed with a mortgage should be reviewed for possible sale before the individual becomes a U.S. resident to avoid exposure to the foreign currency gain on debt extinguishment. See § 8.8-2.

§ 8.7-2 After Arrival

Following is a list of issues affecting taxes that a nonresident should consider after arriving in the United States:

(1) State taxes. Establishing residency in Washington State rather than Oregon will eliminate the nearly flat 9 percent Oregon tax on non-Oregon source income (Oregon will...