---
title: "Tax residency"
description: "Tax residency is the country whose tax rules Fincanva applies to your simulated trades, and it decides which tax rates and which rate structure a backtest uses."
canonical_url: "https://fincanva.com/docs/backtesting/tax-residency"
last_updated: "2026-09-17"
md_url: "https://fincanva.com/docs/backtesting/tax-residency.md"
---

# Tax residency

Tax residency is the country whose tax rules Fincanva applies to your simulated trades. It is the setting that decides *which* tax rates a backtest uses — and, less obviously, *what shape* those rates take, because not every jurisdiction taxes gains by how long you held them. In the app it is the "Tax residency" field, described as "Country whose tax rules apply to your simulated trades", with three options: **United States**, **Italy**, and **Other**.

**Also seen as:** fiscal residency, country of residence

## What does changing tax residency change?

Picking a residency re-seeds the whole tax card: the [tax regime](/docs/backtesting/tax-regime) and each rate are set to the values that jurisdiction uses, and the fields the cascade touched are flagged with an "Auto-updated" badge so you can see what moved. The starting values are:

| Residency | Short-term capital gains | Long-term capital gains | Dividend tax |
|---|---|---|---|
| **United States** | 35% | 20% | 20% |
| **Italy** | *not applicable — field hidden* | 26% (locked) | 26% (locked) |
| **Other** | 20% | 20% | 15% |

Residency also decides which of those fields you can still edit. Under **Italy** the long-term and dividend rates are read-only, with the hint "Set by Italian tax law for the selected regime." Under **United States** and **Other** all the rates are yours to set.

## Does the holding period change the tax rate?

Whether the holding period matters at all depends on your residency. Under **United States** and **Other** rules both rates exist and the holding period decides between them; the threshold is **more than one year — more than 365 days between opening and closing the position.** A position held for exactly 365 days is still short-term; it has to pass the threshold, not merely reach it. Under **Italy** there is no short/long split: the app hides the short-term field entirely and a single rate applies to realized gains however long they were held.

See [capital-gains tax](/docs/backtesting/capital-gains-tax) for how the rate is then applied — it is charged on your net result for the year, not on each winning position, so that page is also where the loss-offsetting rules live.

## Does residency change what happens to my losses?

Yes, and it is the part of this setting people are most often caught by. A realized loss reduces the gains you are taxed on, but **how long it stays usable, and against what, is set by your residency**:

- **United States** and **Other** — losses carry forward with no time limit, and a carried loss keeps its short-term or long-term character.
- **Italy** — losses carry forward for five years, there is a single rate so there is no character to keep, and **a gain on an ETF cannot be reduced by carried losses while a loss on an ETF can be used to reduce other gains.**

[Capital-gains tax](/docs/backtesting/capital-gains-tax#what-happens-to-a-realized-loss) is the full account of all three, including what the Italian ETF asymmetry does to a portfolio built mainly of ETFs.

## Defaults in Fincanva

- The default residency follows your interface language: an English interface starts on **United States**, an Italian one on **Italy**. That is why one fresh account shows a 35%/20% short-and-long pair and another shows a single 26% rate.
- Every residency starts on the **Declarative** [tax regime](/docs/backtesting/tax-regime). Under **Italy** and **Other** you can switch it; under **United States** the regime field is not shown, because the distinction is an Italian one.
- Residency only affects results when the [Taxes assumption](/docs/backtesting/taxes-toggle) is on. With Taxes off, no rate of any residency is applied.
- It is a saved setting, not a view toggle: changing it flips existing runs to **Needs re-run**, and the new rates apply after a strategy runs again.
- Dividends can also be reduced by [withholding tax](/docs/backtesting/withholding-tax) deducted at source, which Fincanva applies automatically and which has no rate field of its own.
- In earlier versions of the app this setting was also labelled "Country". That name now belongs only to the geographic filter used when selecting instruments, so the two are unrelated controls.

## Worked example

The same strategy realizes a **5,000 gain on a briefly held position**, and only the residency differs.

- **United States** — the position was held less than a year, so the gain is short-term and meets the 35% rate: 35% × 5,000 = **1,750 of tax**.
- **Italy** — there is no short/long distinction, so the single 26% rate applies whatever the hold was: 26% × 5,000 = **1,300 of tax**.

Hold the same position for more than a year and the US answer changes — the 20% long-term rate applies instead, so 20% × 5,000 = **1,000 of tax** — while the Italian answer does not move at all. The holding period is only a lever where the residency's rules make it one.

Change one more thing and the residencies part company again: give the strategy a **2,000 realized loss** in the same year. The loss is set against the gain first, so the taxable gain becomes 5,000 − 2,000 = **3,000** under both. The short-held US case now pays 35% × 3,000 = **1,050**, and the Italian case 26% × 3,000 = **780**. But if that 5,000 gain had been on an **ETF**, the Italian answer would not move at all — an ETF gain cannot be reduced by a loss, so it stays 26% × 5,000 = **1,300**, and the 2,000 loss waits instead for a non-ETF gain to reduce. Under **Italy** the unused remainder of a loss also expires after five years rather than carrying indefinitely.

*The figures on this page describe what Fincanva models, not what you should do with your money — see [Is this financial advice?](/docs/investing-theory/is-this-financial-advice#is-this-financial-advice).*