taxes on stocks sold in Germany????

[marti]

Hi,
We are totally shocked about what happened to us. Has anyone experienced the same? Can anyone help?

We are L1 visa - expatriates from Germany. We came to the US in 2006 and have filed our second tax return this year. We sold securities from our German account last year which we had bought a long time ago – before we moved to the US. Our tax consultant based her calculations on the Dollar exchange rate from the time when we bought and the rate from the time when we sold the securities. So a loss or a small gain in Euros in her calculations turned out to be a huge gain in Dollars. But we never realized this gain. Immediately after selling the securities in Euros in Germany, we invested the money again in Germany. The money never left our German Euro-account and we never realized the gain in Dollars.

We cannot believe that US tax law works like that. Is there any way we could calculate the amount differently, e.g. base the calculation on only one exchange rate or convert the Euro amount of the gain/ loss into Dollars? On the IRS website it says a qualified business unit (QBU) can be dealt with differently – does our account qualify for that?

If you can help we would really appreciate that. Thank you!!!

[Bevdeforges]

Originally Posted by marti

Hi,
We cannot believe that US tax law works like that. Is there any way we could calculate the amount differently, e.g. base the calculation on only one exchange rate or convert the Euro amount of the gain/ loss into Dollars? On the IRS website it says a qualified business unit (QBU) can be dealt with differently – does our account qualify for that?

Unfortunately, that's exactly how US tax law works. You have to translate your sales and buying prices at the dates of the transaction - and given how the dollar has been falling, you wind up paying taxes on not only the euro gain or loss, but also the exchange gain (or loss).

I'm not familiar with the qualified business unit, but you may want to ask your tax accountant about it, just to be sure. I suspect that it would have to have been established before your sale of the stock to qualify for any special treatment, but it can't hurt to ask. You may also want to ask your tax accountant for advice about making future sales of your German stocks to avoid getting stung again.
Cheers,
Bev

[twostep]

Capital gains tax applies in US and DE. You write you did not realize the gain but reinvested it. You did not cash out but used the gain to purchase stock. You did realize it. It is pretty straight forward tax reporting. Have you considered changing CPAs?

[synthia]

Do you have to pay German taxes as well? If so, ask your accountant whether there is an offset in one direction or the other.

[twostep]

Originally Posted by synthia

Do you have to pay German taxes as well? If so, ask your accountant whether there is an offset in one direction or the other.

There is no double taxation just reporting. The rate is about the same on both sides of the pond. Stickershock sets in when conversion rates are involved and see your gains disappear.

[marti]

Thank you, Bev. It seems we made a huge mistake.

Originally Posted by Bevdeforges

Unfortunately, that's exactly how US tax law works. You have to translate your sales and buying prices at the dates of the transaction - and given how the dollar has been falling, you wind up paying taxes on not only the euro gain or loss, but also the exchange gain (or loss).

I'm not familiar with the qualified business unit, but you may want to ask your tax accountant about it, just to be sure. I suspect that it would have to have been established before your sale of the stock to qualify for any special treatment, but it can't hurt to ask. You may also want to ask your tax accountant for advice about making future sales of your German stocks to avoid getting stung again.
Cheers,
Bev

[marti]

I don't think I agree. Let me give you an example. Let's take one stock that had a gain of 300 Euros. That was over 3000 in Dollars. We reinvested the 300 Euros in Germany right away. We never realized the rest ($ 2700), but we had to pay taxes for it.
Now I see it was stupid to sell and reinvest, but somehow the way we were taxed does not seem to be fair. Well, now I know better.

Originally Posted by twostep

Capital gains tax applies in US and DE. You write you did not realize the gain but reinvested it. You did not cash out but used the gain to purchase stock. You did realize it. It is pretty straight forward tax reporting. Have you considered changing CPAs?

[twostep]

Originally Posted by marti

I don't think I agree. Let me give you an example. Let's take one stock that had a gain of 300 Euros. That was over 3000 in Dollars. We reinvested the 300 Euros in Germany right away. We never realized the rest ($ 2700), but we had to pay taxes for it.
Now I see it was stupid to sell and reinvest, but somehow the way we were taxed does not seem to be fair. Well, now I know better.

I cannot follow you here. Your stock gained 300 Euros but it was over 3000 US $? Can you explain please?

Wait until Soli comes into effect:>(

[Bevdeforges]

Originally Posted by twostep

I cannot follow you here. Your stock gained 300 Euros but it was over 3000 US $? Can you explain please?

Wait until Soli comes into effect:>(

Problem is, if he bought the stock "years ago" (as I think he said in the original post), you have to work with the exchange rate at that time when filing US taxes. I'm not sure what the Germans did about basis prices when we all went to euros in 2002, but I can tell you it only complicates the picture if his basis is in DM and the sale was in euros.

Normally, an investment broker would advise someone to sell off (and reinvest) some stock that was showing a loss in the same year to cushion the tax bite. But a tax accountant handed the sale as a fait accompli really doesn't have any options.
Cheers,
Bev

[marti]

Originally Posted by twostep

I cannot follow you here. Your stock gained 300 Euros but it was over 3000 US $? Can you explain please?

Wait until Soli comes into effect:>(

If you take the Dollar exchange rate from the time the stock was bought and the Dollar exchange rate from the time it was sold, you get 3000 Dollars. In Euros the gain was just 300. (We bought the stock in Euros while in Germany let's say for 10,000 Euros, sold it there for 10,300 Euros, so we gained 300 Euros. Then we immediately reinvested 10,300 Euros in Germany in Euros.). So the Dollar gain is just a theoretical one - due to the exchange rate! As we never transferred the money to the US to profit from the exchange rate gain, we never realized it. But we still have to pay taxes in the US for 3000 theoretical Dollars! Isn't that terrible?