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I am a nonresident alien, currently living in the U.S.

In 2016, we (my wife and I) rented out one of the rooms of our apartment on AirBnB for a few months (earning about $1400 in total). We had the money sent to my (U.S.) checking account by bank transfer.

This is the same account that I use for my everyday life, where I deposit my salary and keep my savings. This account generated about $150 of interest in 2016.

Now is the time to file my taxes, and one line in the tax rules caught my attention:

Nonresident Aliens who receive interest income from deposits with a U.S. bank, savings & loan institution, credit union, or insurance company, or who receive Portfolio Interest (described in Publication 519, U.S. Tax Guide for Aliens) are exempt from taxation on such interest income as long as such interest income is not effectively connected with a United States trade or business.

(source: https://www.irs.gov/individuals/international-taxpayers/aliens-which-income-to-report )

What do these terms mean precisely? Does occasional renting on AirBnB count as "a United States trade or business", and do occasional bank transfers into an account make it "effectively connected" to that trade? And even if the account is connected, what about the interest income it generates? I feel that it does not really have anything to do with the room rental! the vast majority of it comes from my savings and ultimately from my salary (I work in academia), with maybe only 5% being generated by the money earned from AirBnB.

(Any responses before the tax deadline - April 18 - will be especially appreciated!)

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    A 'non-resident' alien is someone who is not currently living in the US, but you claim you do. If you are 31 days in the US in the current year, and 183 in the last years totaled, you are not anymore a non-resident alien. This changes your tax situation. – Aganju Apr 15 '17 at 11:18
  • I know, but my case is a little special: I am exempt as a "teacher or trainee". See irs.gov/individuals/international-taxpayers/… . – Ilia Smilga Apr 15 '17 at 13:42
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What theyre fishing for is whether the money was earned in the U.S. It's essentially an interest shelter, and/or avoiding double taxation. They're saying if you keep income you make outside the US in a bank inside the US, the US thanks you for storing your foreign money here and doesn't tax the interest (but the nation where you earned that income might).

There is no question that the AirBNB income is "connected with a US trade or business". So your next question is whether the fraction of interest earned from that income can be broken out, or whether IRS requires you to declare all the interest from that account. Honestly given the amount of tax at stake, it may not be worth your time researching.

Now since you seem to be a resident nonresident alien, it seems apparent that whatever economic value you are creating to earn your salary, is being performed in the United States. If this is for an American company and wages paid in USD, no question, that's a US trade or business. But what if it's for a Swedish company running on Swedish servers, serving Swedes and paid in Kroner to a Swedish bank which you then transfer to your US bank? Does it matter if your boots are on sovereign US soil? This is a complex question, and some countries (UK) say "if your boots are in our nation, it is trade/income in our nation"... Others (CA) do not. This is probably a separate question to search or ask.

To be clear, the fact that your days as a teacher or trainee do not count toward residency, is a separate question from whether your salary as same counts as US income.

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It says that you are exempt "as long as such interest income is not effectively connected with a United States trade or business". So the interest is from money earned from doing business with/through AirBnb, a US company. So you will have to report it. Even if your bank doesn't send you a 1099-INT, you have to report it, unless it is under $0.49 because the IRS allows rounding.

  • I am a little surprised that you are referencing the fact that AirBnB itself is a US company. Does that mean that if I had been renting out a room on AirBnB in Canada, but then moving the money to the US account, that would still "contaminate" the whole account? – Ilia Smilga Apr 15 '17 at 14:03
  • Actually, the more I try to understand this, the more confused I get. I have the impression that both my AirBnB income and my regular salary by themselves can be considered to be income "effectively connected" with a U.S. trade or business. So the AirBnB part would be a total red herring. The question is about the interest income generated on top of this money, not the income that provided the money in the first place. Apparently in the majority of cases, that interest income is not considered to be effectively connected. So does the AirBnB operation really change anything? – Ilia Smilga Apr 16 '17 at 3:17

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