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In my last year as a US resident I had a short-term capital loss carryover of about $10,000. In the subsequent year I became a non-resident alien. Am I right that this vaporized (make useless) my capital loss carryover for all my subsequent non-resident taxation (including dividends or effectively connected income or anything else)?

Hypothetically if I became a resident again after say a 3-year interregnum, would that bring back the capital loss carryover for offsetting income or gains? Or did the interruption in status permanently eliminate it?

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You record your capital loss carryover on Schedule D line 6 (for short term) and line 14 (for long term). You then follow the calculations on Part III of the form, and if you still end up with a negative number on line 16 you then use some of the loss on your 1040NR line 7.

If you don't have enough income on your 1040NR to deduct the loss from - you'll end up with what is called "NOL" (Net Operating Loss). See Publication 536 on NOL.

Basically you'll be carrying the loss forward moving it slowly from the capital loss carryover to NOL carryover every year until you have some income to deduct it from.

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  • Thank you. I am not sure how the following paragraph, second sentence reconciles with your answer. "An individual's capital loss deduction generally is limited to the individual's capital gains plus an additional amount of $3,000 ($1,500 for married filing separately). The additional loss is not permitted to nonresident aliens. " From pwc.com/us/en/services/tax/us-inbound-tax/…
    – user2297550
    Commented Sep 28, 2022 at 7:36
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    @user2297550 Schedule D instructions specifically mention 1040-NR: irs.gov/instructions/i1040sd
    – littleadv
    Commented Sep 28, 2022 at 7:43
  • Thanks. One tiny clarification please: my first NOL is for 2019. I will also have an NOL in 2020. Do I have to report the NOL from 2019 on my 2020 and subsequent year tax returns Schedule 1 in order to use it eventually? Or, is it enough to merely use up $3,000 of the capital loss carryover every year until depleted and let the NOL be implicit until it is used?
    – user2297550
    Commented Sep 30, 2022 at 4:08
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    @user2297550 you have to include it on Schedule 1 so that it gets aggregated into the next year's NOL. Nothing is "implicit".
    – littleadv
    Commented Sep 30, 2022 at 4:09

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