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US Capital Gains Tax Guide for Saudi US Dual Citizens

First off, it’s important to remember that the US tax system taxes its citizens on their worldwide income, including gains from these investments, regardless of where the investor resides.

This applies Green Card holders and dual nationals – even those who have never worked in the United States or even visited.

Capital Gains on Stocks and Shares

When you sell shares for a profit, you incur capital gains, which are taxable on your US tax return. However, the tax treatment depends on how long you’ve held the shares:

  • Short-Term Capital Gains: If you hold shares for less than a year, any profit is taxed at your marginal tax rates, which are determined by your total income.
  • Long-Term Capital Gains: For shares held over a year, gains are typically taxed at a lower rate, around 20%. Additional taxes, such as the net investment income tax of 3.8%, may apply depending on your income level.

Capital Gains on Cryptocurrencies

The taxation of cryptocurrencies follows similar principles to stocks, with the challenge often lying in determining the cost basis for tax calculation.

Unlike US brokerage accounts, some crypto exchanges do not provide detailed purchase histories, which complicates the calculation of gains or losses. This is why it’s essential to keep track of the purchase and sale details of your crypto investments for accurate tax reporting.

Investments in Mutual Funds

Investments in non-US mutual funds introduce another layer of complexity. These are often treated as Passive Foreign Investment Companies (PFICs), requiring separate filing on Form 8621.

The tax treatment of PFICs can be harsh, with several calculation methods available depending on the duration of your investment.

The decision to invest in PFICs should be made with caution. Although some investors may accept the higher tax rates for specific investment opportunities, it’s important to be fully aware of the tax consequences before committing.

For US citizenship holders in Saudi Arabia, whether dealing with stocks, cryptocurrencies, or mutual funds, being informed and keeping detailed records can help simplify everything. In fact, consulting with a tax professional experienced in expat tax issues is highly recommended to optimize your tax strategy.

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