Dual-Status Returns: Both Resident and Non-Resident in One Year

Most people have one tax status for the whole year - you're either a US resident or you're not. The year you arrive in the US (or leave) can be different. You may be a non-resident for part of the year and a resident for the rest. The IRS calls this dual-status, and it requires a specific kind of return that combines Form 1040 and Form 1040-NR. The mechanics catch a lot of new arrivals (and emigrants) off guard, particularly because the dual-status return loses several deductions and credits that a regular 1040 would get - and because leaving the US does not, by itself, end US tax residency.

When You're a Dual-Status Filer

You are dual-status in a calendar year in which you change tax status - from non-resident alien to resident alien, or from resident alien to non-resident alien. Two patterns:

Year of Arrival

You moved to the US during the year and met the Substantial Presence Test (SPT) or got a green card. Before your residency starting date you were a non-resident; from that date you are a resident.

Residency starting date under IRC §7701(b)(2)(A):

• Green card only - the first day in the year you were physically present in the US as a lawful permanent resident (§7701(b)(2)(A)(ii))
• SPT - the first day in the year you were physically present in the US (§7701(b)(2)(A)(iii))
• De minimis presence - for the SPT starting date, up to 10 days of US presence can be disregarded if your tax home was in a foreign country and you had a closer connection to that country during those days. The days still count toward the SPT itself, and a signed statement is required (Treas. Reg. §301.7701(b)-4(c)(1); Treas. Reg. §301.7701(b)-8(a)(3)(i), (b)(3)).

Year of Departure

Physically leaving the US does not automatically end US tax residency. Under IRC §7701(b)(2)(B) and Treas. Reg. §301.7701(b)-4(b), the default rule is that a resident alien who is not a US resident at any time during the following calendar year ceases to be a resident on the last day of the calendar year (December 31). An earlier residency termination date is available only if all of the following are met:

• Your tax home is in a foreign country for the rest of the year after the termination date, and you have a closer connection to that foreign country than to the US for that period (§7701(b)(2)(B)(i)-(ii); Treas. Reg. §301.7701(b)-4(b)(2)).
• You are not a US resident at any time during the next calendar year (§7701(b)(2)(B)(iii); Treas. Reg. §301.7701(b)-4(b)(1)). If you become a US resident again in the following year, you are treated as a resident through the end of the departure year regardless of any closer-connection claim (IRS Publication 519, ch. 1, "Residency during the next year").
• You file the required statement establishing the termination date (Treas. Reg. §301.7701(b)-8(a)(3)(ii), (b)(3)) - see below.

The earlier date depends on which residency test you met (Treas. Reg. §301.7701(b)-4(b)(2)):

• SPT only - the last day in the year you were physically present in the US.
• Green card test only - the first day in the year you are no longer a lawful permanent resident.
• Both tests - the later of those two dates.
• De minimis presence - if you are a resident under the SPT, up to 10 days of US presence can be excluded when fixing the earlier date if your tax home and closer connection were foreign during those days. Days cannot be carved out of the middle of a continuous period of presence unless the whole period qualifies (Treas. Reg. §301.7701(b)-4(c)(1)).

Citizens and Long-Term Residents: Expatriation Is a Separate Test

Residency termination under §7701(b) and expatriation under IRC §877A are different events with different dates, and one does not decide the other. For a US citizen, the expatriation date is the date citizenship is relinquished; for a long-term resident (a lawful permanent resident in at least 8 of the last 15 tax years ending with the year status ends), it is the date the person ceases to be a lawful permanent resident (IRC §877A(g)(2), (g)(3), (g)(5); IRC §877(e)(2); Form 8854 instructions). A covered expatriate (IRC §877A(g)(1)(A), by reference to §877(a)(2)) is treated as having sold property at fair market value on the day before the expatriation date (IRC §877A(a)(1)). The initial Form 8854 is attached to the income tax return for the year that includes the expatriation date, and which return applies depends on your status at year-end (Form 8854 instructions; IRS Publication 519, ch. 1). The §7701(b) residency starting and termination rules above address alien individuals, so a citizen's renunciation should not be analyzed as an ordinary SPT departure. See the Form 8854 guide.

How the Return Itself Looks

Dual-status returns aren't a separate form. They combine Form 1040 and Form 1040-NR, with one designated as the return and the other attached as a statement. Which is which depends on your status on the last day of the year (IRS, "Taxation of dual-status individuals"; IRS Publication 519, ch. 6).

Resident at Year-End (Typical Year of Arrival)

File Form 1040 and write "Dual-Status Return" across the top. Attach a statement showing your income for the non-resident part of the year; Form 1040-NR can serve as the statement if you write "Dual-Status Statement" across the top.

Non-Resident at Year-End (Typical Year of Departure)

File Form 1040-NR and write "Dual-Status Return" across the top. Attach a statement showing your income for the resident part of the year; Form 1040 can serve as the statement if you write "Dual-Status Statement" across the top. Any statement must show your name, address, and taxpayer identification number.

How the Tax Is Figured

A dual-status year is computed as one annual return, not two independent returns whose tax is added (IRS, "Taxation of dual-status individuals"; IRS Publication 519, ch. 6):

• Combined at graduated rates: your worldwide income from the resident period and your effectively connected income (ECI) from the non-resident period, after allowable deductions, are taxed together at the rates that apply to US citizens and residents.
• Taxed separately: US-source income from the non-resident period that is not ECI is taxed at a flat 30% (or a lower treaty rate), with no deductions allowed against it.

Treaty benefits generally apply only to the non-resident part of the year, with limited exceptions for certain students, teachers, and researchers (IRS, "Taxation of dual-status individuals"). Authority: IRC §871(a)(1) (30% tax on FDAP), IRC §871(b) (graduated rates on ECI).

The Limitations - This Is Where It Hurts

Dual-status filers can't take several items that regular 1040 filers get:

No Standard Deduction

This is the big one. A dual-status filer must itemize; the Form 1040-NR instructions state that the standard deduction is unavailable even for the part of the year you were a resident alien. If actual itemized deductions (state taxes, mortgage interest, charitable contributions) are less than the standard deduction would have been, you pay tax on more of your income than a comparable single-status resident would.

The separate standard deduction for students and business apprentices from India under Article 21(2) of the US-India treaty is a rule for nonresident aliens, and the Form 1040-NR instructions do not create an India exception to the dual-status restriction. If you may be affected, check the current Form 1040-NR instructions and IRS Publication 519 before relying on it.

No Head-of-Household Filing Status

Dual-status filers cannot use the head of household tax table column or rate schedule, even with qualifying dependents.

No Joint Filing (by Default)

A dual-status filer cannot file jointly with a spouse by default - the Code bars a joint return if either spouse is a non-resident alien at any time during the year (IRC §6013(a)(1)). A dual-status filer who is married to a US citizen or resident for all or part of the year and does not elect joint filing must use the married filing separately tax table column or rate schedule (the joint and single columns are unavailable), which often produces a worse result than joint filing (IRS, "Taxation of dual-status individuals").

Two elections under §6013 can fix this. Each requires both spouses to elect:

• §6013(g) election - for a non-resident alien who, at the close of the tax year, is married to a US citizen or resident. The non-resident alien is treated as a US resident for the entire year. It is a continuing election that applies to the year made and later years until terminated by revocation, death of a spouse, legal separation, or the Secretary (§6013(g)(3)-(5)). Once terminated, the couple cannot make the election again for any later year (§6013(g)(6)).
• §6013(h) election - for an individual who is a non-resident alien at the beginning of the year and a US resident at the close of the year, and who is married at the close of the year to a US citizen or resident. The individual is treated as a US resident for the entire year, which ends the dual-status return and allows a joint Form 1040. It is a one-time election for the couple (§6013(h)(1), (h)(2)).

Both elections remove dual-status treatment for the electing spouse and allow joint filing. The trade-off: the electing spouse is treated as a resident for the whole year, so that spouse's worldwide income for the entire year, including the months before arrival, becomes US-taxable.

Limited Credits

If you are a dual-status filer married to a US citizen or resident, you may not claim the earned income credit, the credit for the elderly or disabled, or an education credit unless you elect to be taxed as a resident jointly with your spouse. A dual-status filer with a qualifying dependent may be entitled to additional deductions and credits. For the remaining credits and the credit for foreign taxes paid, follow the "How To Figure Your Tax" rules in IRS Publication 519, chapter 6, and the Form 1040 and Form 1040-NR instructions (IRS, "Taxation of dual-status individuals").

What Income Goes Where

Resident Period

You report all worldwide income received during your residency period. This includes US-source wages, business income, and investment income, plus all foreign-source income received during the residency period (foreign wages, foreign dividends, foreign capital gains, foreign rental income).

Non-Resident Period

You are taxed on US-source income under non-resident rules:

• Effectively connected income (ECI) - income connected with a US trade or business (for example, US wages), taxed at regular graduated rates (IRC §871(b)). US real property rental income is ECI only if you make the §871(d) election.
• FDAP income - US-source dividends, interest, rents, royalties, and other passive income that is not ECI, taxed at a flat 30% or a lower treaty rate (IRC §871(a)(1)). Qualifying portfolio interest (IRC §871(h)) and interest on bank deposits that is not ECI (IRC §871(i)(2)(A)) are exempt from the 30% tax.
• Foreign-source income from the non-resident period is generally not taxed because it is not ECI (IRC §864(c)(4)(A)). The exceptions are narrow: income attributable to a US office or fixed place of business, such as certain rents or royalties, banking and financing income, and certain inventory-type sales (IRC §864(c)(4)(B)).

Source Rules for Common Items

Wages and Salaries

Compensation for services is sourced to where the work is performed, so pay for work done in the US is US-source (IRC §861(a)(3)), subject to a narrow exception for a non-resident alien temporarily present for 90 days or fewer with compensation of $3,000 or less from certain foreign payors. A Canadian who moves to New York on March 1 and works there from that date has US-source wages from March 1. Wages for work performed in Canada before March 1 remain foreign-source even if a US employer pays them after the move. Source and timing are separate questions: the IRS states that foreign-source income is taxable if you receive it during the resident period, so confirm when pre-move pay was actually received.

Interest

Interest from the US government or from noncorporate US residents and domestic corporations is US-source (IRC §861(a)(1)); interest from a foreign bank is generally foreign-source. Interest from a Canadian bank received during the non-resident period is foreign-source and not taxed; the same interest received during the residency period is reportable as worldwide income. US-source interest received during the non-resident period is FDAP, subject to the exemptions noted above.

Dividends

Dividends from a domestic corporation are US-source (IRC §861(a)(2)(A)). Dividends from a foreign corporation are US-source in part only if 25% or more of its gross income over the prior three years was effectively connected with a US trade or business (IRC §861(a)(2)(B)). US-corporation dividends received during the non-resident period are US-source FDAP, generally subject to 30% withholding or a lower treaty rate; received during the residency period they are worldwide income reported on the 1040.

Capital Gains

For source purposes, gain from selling personal property such as stock is sourced by the seller's residence: a US resident's sale is US-source and a non-resident's sale is foreign-source (IRC §865(a)). For this rule, a non-resident alien with a US tax home counts as a US resident, and a nonresident's sales attributable to a US office or fixed place of business are US-source (IRC §865(g)(1); IRC §865(e)(2)). A non-resident alien present in the US 183 days or more in the tax year is taxed at 30% on net US-source capital gains (IRC §871(a)(2)). Gains realized in the residency period are worldwide income reported on the 1040.

One common complication: a stock sold in the residency period that was bought before the move. The full gain is US-taxable in the residency period. Foreign tax paid on the same gain is creditable, subject to the foreign tax credit limitation.

The Pre-Immigration Step-Up Question

Here's something that frustrates new US residents: there is no automatic basis step-up on assets when you become a US person. Stocks held since 2010 are still treated as having been bought in 2010 for US purposes, even if you became a US resident in 2024.

This means: if you sell after arrival, the entire historical gain is US-taxable, even the appreciation that accrued while you weren't a US person. Many cross-border practitioners recommend selling appreciated foreign assets before the residency starting date, then repurchasing them after the move, which resets the cost basis upward. The sale can fall in the year before arrival or in the non-resident part of the arrival year, in each case subject to the §865 sourcing rules and the §871(a)(2) 183-day rule above.

Treaty Position as an Alternative

Some individuals can avoid a dual-status return by claiming treaty residency in the other country for the year.

If you are a resident of both the US and a treaty country under the Code and the treaty's residency tie-breaker (for example, Article IV of the US-Canada treaty) makes you a resident of the treaty country, and you claim a treaty benefit to reduce US tax, you are treated as a non-resident alien for purposes of computing US income tax (Treas. Reg. §301.7701(b)-7(a)(1)). You then file Form 1040-NR by the non-resident due date, including extensions, with a statement in the form of Form 8833 attached (Treas. Reg. §301.7701(b)-7(b), (c)).

Three limits matter:

• The rule applies to alien individuals only (Treas. Reg. §301.7701(b)-7(a)(1)).
• For purposes other than computing US income tax (for example, controlled foreign corporation status), you are generally still treated as a US resident, and the residency time periods under §301.7701(b)-4 do not change (Treas. Reg. §301.7701(b)-7(a)(3)).
• For a long-term resident, beginning to be treated as a resident of a treaty country, without waiving treaty benefits and with notice to the IRS, can itself be the §877A expatriation date (Form 8854 instructions). Model the exit tax before taking the position.

This is most relevant for people who became US residents under the SPT but kept their permanent home and center of vital interests abroad, such as executives on temporary US assignments while family stays abroad.

State Returns and Dual-Status

States have their own residency rules and don't follow the federal dual-status pattern. Most states define residency based on domicile, days of presence, or a combination - and many states require a part-year resident return that doesn't mirror the federal dual-status structure.

For a year of US arrival or departure, expect to file:

• Federal dual-status return (or §6013 election to single-status)
• State part-year resident return for each state where you were resident during the year
• State non-resident return for any state where you had source income while not a state resident

State residency is independent of federal. You can be a federal dual-status filer and a full-year state resident if you were domiciled in the state on January 1 and didn't move out. The mismatch between federal and state rules in arrival and departure years is a frequent source of double counting and errors.

Practical Recommendations

Model the §6013(h) election if you're married and you or your spouse moved to the US mid-year. It can produce lower total tax than the default dual-status filing - but not always. Run both calculations.

Document your residency starting and termination dates carefully. CBP entry/exit data, lease commencement, school enrollment, employment start dates, and visa stamps are the records the IRS will look at. Keep them.

Before leaving, confirm the termination-date conditions. An earlier termination date requires a foreign tax home, a closer connection abroad, no US residency in the following year, and a timely statement. Returning to US residency in the next year retroactively turns the departure year into a full resident year. See the §7701(b)(10) re-entry rule for the separate three-year look-back.

Plan basis events before arrival. The lack of automatic step-up means appreciated foreign assets carried into US residency become fully US-taxable on disposition. The window to crystallize gains is before the residency starting date.

Coordinate the home country's exit return. Canadian movers should be filing a final part-year T1 with the departure tax (T1243). UK movers may need to deal with the statutory residence test. Don't file the US dual-status return without addressing what happens on the other side.

The first year is harder than subsequent years. Once you've cleared the year of arrival or departure, you're a single-status filer (resident or non-resident) and the mechanics simplify dramatically. Don't try to apply year-of-arrival logic to ongoing residency years.