The Source of Income from the Sale of Personal Property

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Jason B. Freeman

Jason B. Freeman

Managing Member


Mr. Freeman is the founding member of Freeman Law, PLLC. He is a dual-credentialed attorney-CPA, author, law professor, and trial attorney.

Mr. Freeman has been named by Chambers & Partners as among the leading tax and litigation attorneys in the United States and to U.S. News and World Report’s Best Lawyers in America list. He is a former recipient of the American Bar Association’s “On the Rise – Top 40 Young Lawyers” in America award. Mr. Freeman was named the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas for 2019 and 2020 by AI.

Mr. Freeman has been recognized multiple times by D Magazine, a D Magazine Partner service, as one of the Best Lawyers in Dallas, and as a Super Lawyer by Super Lawyers, a Thomson Reuters service. He has previously been recognized by Super Lawyers as a Top 100 Up-And-Coming Attorney in Texas.

Mr. Freeman currently serves as the chairman of the Texas Society of CPAs (TXCPA). He is a former chairman of the Dallas Society of CPAs (TXCPA-Dallas). Mr. Freeman also served multiple terms as the President of the North Texas chapter of the American Academy of Attorney-CPAs. He has been previously recognized as the Young CPA of the Year in the State of Texas (an award given to only one CPA in the state of Texas under 40).

Generally, income from the sale of personal property is “sourced” to the residence of the seller. If the seller is a U.S. tax resident the source of the income is deemed to be the United States.  On the other hand, if the seller is a nonresident, the income is generally foreign-sourced.

The Congressional policy behind this residence rule provides as follows:

Source rules for sales of personal property should reflect the location of the economic activity generating the income at issue or the place of utilization of the assets generating that income. In addition, source rules should operate clearly without the necessity for burdensome factual determinations, limit erosion of the U.S. tax base and, in connection with the foreign tax credit limitation, generally not treat as foreign income any income that foreign countries do not or should not tax.


Because the residence of the seller generally is the location of much of the underlying activity that generates income derived from sales of personal property, the committee believes that sales income generally should be sourced there.

Rept. 99–426, at 360 (1985), 1986–3 C.B. (Vol.2) 1, 360. Courts have likewise recognized the policy behind the residence rule, acknowledging that “Congress determined that ‘the residence of the seller generally is the location of much of the underlying activity that generates income derived from sales of personal property.’” See Int’l Multifoods Corp. v. Comm’r of Internal Revenue, 108 T.C. 579, 589 (U.S.T.C. 1997). In this regard, the term “sale” includes any exchange or other disposition.

For income-sourcing purposes, the concept of residency is modified from the general tax definition of residency and is based on the location of the seller’s “tax home.” A U.S. citizen or resident alien is deemed to be a U.S. resident for purposes of determining the source of personal property if they do not have a tax home outside the United States.  Likewise, a nonresident alien is deemed to be a United States resident if he has a tax home within the United States. For these purposes, the concept of “tax home” is defined as the individual’s home for purposes of section § 162(a)(2).  However, an individual may not be treated as having a tax home in a foreign country for any period for which he has an abode in the United States.

In applying the sourcing rule based on the residence of the seller, for example, the Courts have ruled that a stock loss realized by a U.S. resident on the sale of stock of a foreign corporation was a U.S.-source loss based on the residence of the seller.

Exceptions to the General Sourcing Rule

The general rule for sourcing income from the sale of personal property is subject to several exceptions.  The following list, while not an exhaustive list of those exceptions, contains several of the most common exceptions to the income sourcing rules:

Remember that other exceptions to the general may apply, depending on the circumstances and income type.

Tax Treaties

The United States is a signatory to more than 60 income tax treaties.  Tax treaties often change the otherwise applicable income sourcing rules.

Our Freeman Law interactive tax treaty map provides a link to tax treaty materials for each U.S. treaty partner:


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