Possession Exclusion For 1999, the possession exclusion applies only to individuals whoare bona fide residents of American Samoa. Individuals in the following U.S. possessions or territories arenot eligible for the possession exclusion discussed here. Baker Island Commonwealth of Northern Mariana Islands (CNMI) Guam Howland Islands Jarvis Island Johnston Island Kingman Reef Midway Islands Palmyra Puerto Rico Virgin Islands Wake Island Special filing requirements apply to individuals in the CNMI,Guam, Puerto Rico, and the Virgin Islands. See FilingRequirements for Individuals in U.S. Possessions, later.Individuals in the other possessions listed above should see IfYou Do Not Qualify, later. Qualifications To qualify for the possession exclusion, you must be a bonafide resident of American Samoa for the entire tax year. Forexample, if your tax year is the calendar year, you must be a bonafide resident from January 1 through December 31. In addition to thistime requirement, the following factors may be considered indetermining bona fide residence. Your intent to be a resident of American Samoa, as shown bythe circumstances. The establishment of a permanent home for you and members ofyour family in American Samoa for an indefinite period of time. Your social, cultural, and economic ties to AmericanSamoa. Your physical presence for the year. Other factors that may be considered are the nature, extent, andreasons for temporary absences; assumption of economic burdens andpayment of taxes to American Samoa; existence of other homes outsideof American Samoa; and place of employment. Caution: If you were not a bona fide resident of American Samoa for all of1999, you cannot claim the possession exclusion. See If You DoNot Qualify, later. What Income Can Be Excluded accommodation in LeipzigIf you qualify as a bona fide resident of American Samoa for 1999,you can exclude income from sources in American Samoa, Guam, or theCNMI and income effectively connected with your trade or business inthese possessions. Possession source income.Excludable income from sources within the possessions includes thefollowing. Wages, salaries, and other kinds of pay for personalservices performed in the possessions. (But see U.S. Governmentwages, later, for an exception.) Dividends received from possession sources, including thosepaid by: U.S. corporations that do business in the possessions andelect the Puerto Rico and possession tax credit, and Possession and foreign corporations that do business mainlyin the possessions. Interest on deposits paid by banks that do business mainlyin the possessions, including interest paid on deposits with thepossession branches of: Domestic banks with commercial banking business in thepossessions, and Savings and loan associations chartered under federal orstate laws. Gains from the sale of securities, such as stockcertificates, are from sources in the possessions if the seller'sresidence is in a possession and the sale is not attributable to anoffice or other fixed place of business maintained by the seller inthe United States. U.S. Government wages. For purposes of the possession exclusion, possession source incomedoes not include wages, salaries, etc., paid by the U.S.Government or any of its agencies to individuals who are its civilianor military employees. Scholarships and fellowships.The source of a payment made as a scholarship or fellowship grantis generally the residence of the payer. The result is the same ifpayments are made by an agency acting on behalf of the payer. Examples.The following examples illustrate the sources of income. Assumethat corporations chartered in American Samoa (American Samoancorporations) do business only in American Samoa, and that the U.S.and foreign corporations do not carry on business in the possessions. Example 1.Frank Harris, who is single, is an engineer who went to work inAmerican Samoa for a private construction company on August 3, 1998,and lived there for all of 1999. He is a bona fide resident ofAmerican Samoa for 1999. During 1999, he received the following amounts of income. Samoan wages $23,300 Nonpossession source income:  Dividends (U.S.) 400  Dividends (foreign) 100  Interest (U.S.)     1,300     1,800 Total income   $25,100 Frank's possession source income eligible for the exclusion is$23,300. Frank's remaining income ($1,800) is not possession sourceincome and is not eligible for the exclusion. Example 2.Oliver Hunter was employed by a private employer in American Samoafrom June 16, 1998, through December 31, 1999. He is a bona fideresident of American Samoa for 1999. During 1999, he received the following amounts of income. Possession source income:  Samoan wages $16,000  Guam interest       500 $16,500 Nonpossession source income:  U.S. dividends 2,000  Short-term capital gain from sale ofU.S. stock     4,000     6,000 Total income   $22,500 Oliver's possession source income of $16,500 is eligible for theexclusion. Oliver's remaining income ($6,000) is not possession sourceincome and is not eligible for the exclusion. Deductions and Credits You can neither deduct nor claim a credit for items connected toyour possession income that you exclude from gross income on your U.S.income tax return. See Filing Tax Returns, later, to findout if you have to file a U.S. income tax return. Items that do not apply to a particular type of income must bedivided between your excluded income from possession sources andincome from all other sources to find the amount you can deduct onyour U.S. tax return. Examples of these items are medical expenses,real estate taxes, mortgage interest on your home, and charitablecontributions. Figuring the deduction.To figure the amount of an item you can deduct on your U.S. incometax return, multiply the amount by the following fraction. Formula Standard deduction.The standard deduction does not apply to a particular type ofincome. It must be divided between your excluded income and incomefrom other sources. This division must be made before you candetermine if you must file a U.S. tax return, because the minimumincome level at which you must file a return is based, in part, on thestandard deduction for your filing status. Example.Barbara Jones, a U.S. citizen, is single, under 65, and a bona fideresident of American Samoa. During 1999, she received $20,000 ofincome from Samoan sources and $5,000 of income from sources outsidethe possessions. She does not itemize her deductions. Her allowablestandard deduction for 1999 is figured as follows: Formula best Sopot hotels reviewForeign tax credit.If you must report possession source income on your U.S. taxreturn, you can claim a foreign tax credit, figured on Form 1116 forincome taxes paid in the possessions on that income. You cannot claima foreign tax credit for taxes paid on excluded possession income. If you have income, such as U.S. Government wages, that is notexcludable, and you have income from possession sources that isexcludable, you must figure the credit by reducing your foreign taxespaid or accrued by the taxes based on the excluded income. You mustmake this reduction for each separate income category. To find theamount of this reduction, use the following formula for each incomecategory. Formula For more information on foreign tax credit, get Publication 514. Personal exemptions.Personal exemptions are allowed in full. They are not divided. Moving expenses.If you are claiming expenses for a move to a U.S. possession fromthe United States, or from a U.S. possession to the United States, useForm 3903, Moving Expenses. These are not consideredforeign moves. Get Publication 521, Moving Expenses, formore information. If You Do Not Qualify If you do not qualify for the possession exclusion because you arenot a bona fide resident of American Samoa (as explained earlier), ornot a bona fide resident of American Samoa for the entire year, figureyour tax liability in the usual manner. Report all your taxableincome, including income from foreign and possession sources, andclaim all allowable exemptions, deductions, and credits, following theinstructions for Form 1040. You can take a credit against your U.S. tax liability if you paidincome taxes to a foreign country or a possession and reported incomefrom sources outside the United States on your U.S. tax return. Theamount of foreign or possession income taxes paid that you can claimas a credit is figured on Form 1116, which must be attached to yourForm 1040. For more information, see Publication 514.