Foreign tax credit for capital gains

Go Back   Expat Forum For People Moving Overseas And Living Abroad > Expat Forum General > General Expat Discussions > Expat Tax

Expat Tax This new forum is for tax related queries and discussions for all expats.

Foreign tax credit for capital gains


Reply
 
Thread Tools
  #1 (permalink)  
Old 6th August 2013, 09:49 PM
New Member
 
Join Date: Apr 2012
Location: Canada
Posts: 8
Rep Power: 0
HillbillyCanuck is on a distinguished road

Users Flag! Originally from usa. Users Flag! Expat in canada.
Default Foreign tax credit for capital gains

Hello,

I have a capital gain from the maturation of some Canadian corporate bonds I bought at a discount several years ago (long term capital gain) and I'm trying to figure how to handle them on an American tax return. I've done my Form 8949 and my Schedule D but I'm getting really bogged down trying to figure out how to handle the capital gain with respect to the foreign tax credit. The more I read, the more confused I become.

I'm retired with a total income well below six figures; the capital gain represents about 5% of my income. With the exception of the capital gain all of my income is from pension, interest and dividends (no qualified dividends), so all of my income is in the passive category with respect to the foreign tax credit. All my income is from Canadian sources and I don't have any investment expenses.

What I'd like to do is just add the capital gain to the rest of my passive category income (line 1a of Form 1116) and ignore all the nearly incomprehensible talk of elections, adjustments and special worksheets found in the instructions.

Since my case is so simple, is it correct to do this?

Plan B is to treat the capital gain as interest from my trading account. Even though this would result in the capital gain being taxed at a higher rate by the IRS I still wouldn't expect to owe any tax due to the higher tax rates in Canada. Plan B would give me an inaccurate tax return, but it has the virtue of simplicity.

Reply With Quote
  #2 (permalink)  
Old 7th August 2013, 01:19 AM
BBCWatcher's Avatar
Member
 
Join Date: Dec 2012
Location: Singapore
Posts: 2,601
Rep Power: 169
BBCWatcher is a splendid one to beholdBBCWatcher is a splendid one to beholdBBCWatcher is a splendid one to beholdBBCWatcher is a splendid one to beholdBBCWatcher is a splendid one to beholdBBCWatcher is a splendid one to beholdBBCWatcher is a splendid one to behold
247 likes received
4 likes given

Users Flag! Originally from usa. Users Flag! Expat in singapore.
Default

Naive questions: Did the bond pay interest that you reported in prior tax years? Did you amortize the bond interest in each of those years to reflect the discount when you purchased the bond?

Reply With Quote
  #3 (permalink)  
Old 7th August 2013, 02:55 PM
New Member
 
Join Date: Apr 2012
Location: Canada
Posts: 8
Rep Power: 0
HillbillyCanuck is on a distinguished road

Users Flag! Originally from usa. Users Flag! Expat in canada.
Default

Quote:
Originally Posted by BBCWatcher View Post
Naive questions: Did the bond pay interest that you reported in prior tax years? Did you amortize the bond interest in each of those years to reflect the discount when you purchased the bond?
The bonds were held inside an investment account and interest was paid into the cash component of the account. The interest and dividends earned by items within the account were reported in aggregate as having been paid by the institution which provides the account. This means that I didn't make an individual entry for each of the bonds.

To the best of my knowledge the institution doesn't amortize the interest to reflect the discount.

Reply With Quote
  #4 (permalink)  
Old 7th August 2013, 03:17 PM
BBCWatcher's Avatar
Member
 
Join Date: Dec 2012
Location: Singapore
Posts: 2,601
Rep Power: 169
BBCWatcher is a splendid one to beholdBBCWatcher is a splendid one to beholdBBCWatcher is a splendid one to beholdBBCWatcher is a splendid one to beholdBBCWatcher is a splendid one to beholdBBCWatcher is a splendid one to beholdBBCWatcher is a splendid one to behold
247 likes received
4 likes given

Users Flag! Originally from usa. Users Flag! Expat in singapore.
Default

Quote:
Originally Posted by HillbillyCanuck View Post
The bonds were held inside an investment account....
A Passive Foreign Investment Company (PFIC) perchance?

Reply With Quote
  #5 (permalink)  
Old 7th August 2013, 03:36 PM
New Member
 
Join Date: Apr 2012
Location: Canada
Posts: 8
Rep Power: 0
HillbillyCanuck is on a distinguished road

Users Flag! Originally from usa. Users Flag! Expat in canada.
Default

Quote:
Originally Posted by BBCWatcher View Post
A Passive Foreign Investment Company (PFIC) perchance?
Heaven forbid!

No, it's the investment arm of one of Canada's "Big Five" banks; they offer individual trading accounts. If the IRS considers them a PFIC, then a LOT of Americans living in Canada are in deep doo.

Reply With Quote
Reply

Tags
capital gains, foreign tax credit, form 1116

Thread Tools

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Capital gains tax simpleton France Expat Forum for Expats Living in France 3 24th July 2013 05:23 AM
Capital Gains Tax????? Ains Australia Expat Forum for Expats Living in Australia 0 10th April 2013 10:45 PM
Capital Gains Tax chris&vicky Spain Expat Forum for Expats Living in Spain 3 8th April 2013 02:22 PM
Capital Gains Tax rudders Spain Expat Forum for Expats Living in Spain 5 8th April 2008 04:52 PM
Capital gains or income taxes levied on foreign nationals DAfshar America Expat Forum for Expats Living in America 12 14th March 2008 05:39 AM

LEGAL NOTICE
By using this Website, you agree to abide by our Terms and Conditions (the "Terms"). This notice does not replace our Terms, which you must read in full as they contain important information. You must not post any defamatory, unlawful or undesirable content, or any content copied from a third party, on the Website. You must not copy material from the Website except in accordance with the Terms. This Website gives users an opportunity to share information only and is not intended to contain any advice which you should rely upon. It does not replace the need to take professional or other advice. We have no liability to you or any other person in respect of any content on this Website.
FORUM PARTNERS

ExpatForum.com is owned and operated by VerticalScope Inc.

Retiring Overseas Guides | Moving Overseas Guides | Cost of Living | Health Care Guides


All times are GMT. The time now is 11:27 PM.


Powered by vBulletin®
Copyright ©2000 - 2014, vBulletin Solutions, Inc.
Search Engine Friendly URLs by vBSEO