I recently moved to Portugal. I will become a Tax Resident sometime in the first quarter of 2024. Capital Gains on investments (not real estate) are taxed at 27% in Portugal. I have unrealized Capital Gains in an investment portfolio. My idea is to liquidate just enough of this portfolio to stay under the $583,750 income threshold in 2024, for Married filing Jointly. This will allow me to pay 15% Capital Gains tax + 3.8% Net Investment Income tax in the US and nothing in Portugal. I have minimal other income currently. I am not working and will only be getting interest income. As long as I keep the total under the $583,750 + standard deduction of $29,200, I am thinking I should be all set. Am I missing something?
Thanks for weighing in.
Not an unreasonable plan, but I would want to be certain that gains recognized in 2024 before establishing your overseas tax home would only be taxed in the US. It could be that Portugal taxes you for the whole year. If this were a US state, most would treat your first year as a part-year resident and allow you to not include the income before you established residency, but who knows about Portugal. I would suggest finding a tax profession in Portugal to hire and ask this question of.
Also I want to read and understand the US tax treaty with Portugal.
https://www.irs.gov/businesses/international-businesses/portugal-tax-treaty-documents
It might have the answer or at least inform you for the future.
And for the future (when you have an overseas tax home) you need to understand the details of the Foreign Tax Credit (FTC). It is quite complicated, but it will usually (but not always) reduce your US 1040 taxes to zero because you will (usually) get a credit for the overseas taxes paid. Our taxes are so low that US taxes usually wind up being zeroed out. There are ways this doesn't work out, so your particulars matter a lot (particularly if you have US income that is not subject to overseas taxation).
Thanks for weighing in. I have met with a Portuguese Tax Attorney and it is straight forward. There is a defined path to becoming a Tax Resident in Portugal. Anything happening before that day, is not taxable by Portugal. It was suggested to me by a Portuguese Tax Attorney (and an American Tax Attorney) that I take the Capital Gains tax pain in the US now. I wanted to make sure that my reasoning on keeping my taxable income under the threshold of $583,750 + the standard deduction of $29,200 thereby securing the 15% Capital Gains Tax Rate was sound.
Portugal has a Tax Treaty with the US whereby I avoid double taxation. I am part of the Non Habitual Resident tax scheme in Portugal, which means I pay a flat 10% tax on income (as I will be paying more than that in the US I probably won't be paying anything in Portugal). Capital gains on Real Estate are taxed at 0% BUT Capital Gains on investments are taxed at 27%
With over a half of a million dollars of income and dealing with multi-country taxation, it is REALLY in your best interest to be consulting a good tax professional.
Ok. So you understand the Portugal side. That was my major concern and about which I know nothing.
I think your US tax reasoning is sound, but I recommend that you get the current 2023 turbox tax (most of us volunteers all prefer the download version) and mock up your expected income to verify. The 2024 brackets will be slightly larger but a quick google will show you the difference. E.g. https://www.bankrate.com/investing/long-term-capital-gains-tax/
TT 2023 will also have a 2024 planner that you can use.