[NY Student]

Hi:
My husband and I came to the US on Sept2000 with an F1, and travel to Costa Rica (CR) every year for 20-30 days in dec/jan.Been filing married filing separate 1040NREZ as advised at my University.No treaty exists with CR so each of us only claim the standard deduction ($3200 for 2004).I will move to F1-OPT in oct2006, my husband entered Residency Training under an F1OPT two weeks ago and we will remain in the US for at least 7 more years.We both will be sponsored an H1B at some point in 2007.Since deductions for 1040 are higher than the ones for 1040NREZ (5300vs3300) we've been thinking about opting for filing as residents (first time choice).Questions: a.Can we do this? What are the ads/cons if our only income is from the US. b.Do we have to file dual status (we meet reqs for substantial presence). c.We sold our house in CR and wired the money here, used it to build a home that will be ready in dec (should we itemize or not?)is that money considered taxable under the resident filing? Thanks a lot for your help!

[AtlantaTaxExpert]

Actually, because you entered the U.S. in 2000 and effectively stayed in country for that year and most of 2001, 2002, 2003 and 2004, you should have filed as a resident alien for 2005.

The rule is simple: Non-resident alien status for F-1 visa holders is good for five years, with any part of the first calendar year counting as a FULL year. After that five-year period, you then must fle as a resident alien.

You can amend your return for 2005 and file jointly, claiming an additional $10,000 standard deduction, which should produce at least a $1,500 refund.

After that, just file as resident aliens. It is likely you will benedit the most by filing jointly, but you actually need to prepare the return both ways (jointly and filing separately) to determine which produces the least amount of tax.

As for your house, itemizing depends on whether the interest and tax expenses of the house exceed the approximately $11,000 standard deduction for 2006. Without more details, I cannot definitively answer your question.

[NY Student]

ATE:
Thanks a lot for prompt reply. So here's the deal: each of us filed 1040NREZ (married filing separate) and did only the $3200 deduction for each of us. Payroll deducted $1800 and after the 3200 standard deduction, our table showed we should've paid $2400 for our 2005 taxes. Thus using 1040NREZ tables the program said ea of us owed almost $600 which we paid. Now checking at form 1040EZ (which I believe is what we should've filed), the deduction should've been $8200 (5000 plus 3200) for ea of us, and thus we actually did not owe anything but should've gotten back about $117 total. If we now file an amendment can we claim the $1200 that we techincally overpaid? If so what documentation do we need to provide and which form(s) should we use/file (1040EZ only states what was paid on form W2, should we use 1040 or any other forms)? Plus as F1 we did not receive any other forms (1099's or similar related to social security/medicare or else) do we have to care about any of this?
About the house as you stated it makes no sense to do itemized deductions for the coming year as overall-interest is not even closer to the standard deduction. Thanks again!

[AtlantaTaxExpert]

Amend the return using Form 1040X and file JOINTLY. I would attach copies of the Form 1040NR-EZ you filed. With the explanation as to why you are amending the return, that should do it.

[NY Student]

Great! Thanks a lot. One more question, could we send an amendment for 2003-2004 tax years as we complied with the substantial presence test (more than 31 days on 2003 and more than 183 days total ? I did the numbers for that and we should've gotten a refund for those years if filing as residents. We paid about $2000 ea year on top of what was withheld (similar to 2005 the university software always told us we owed).

[AtlantaTaxExpert]

No, you cannot do that for 2003 and 2004.

The Substantial Presence Test does not begin to apply to holders of the F-1 visa until they exceed five years in the United States. You were under five years in 2003 and 2004, so you had to file as non-resident aliens.