Tax rate of Foreign Capital Gain

[LXT]

Hi,

I sold a few mutual fonds in2021  that I'm holding in a European country. 

I didn't receive 1099-B from the foreign bank, so I manually typed in

all the relevant information, such as sales proceeds, cost base, etc.

I chose 'Long term (Box F)' in the Holding period since I hold them longer

than a year. But I found out that TurboTax calculated the capital gain as

short-term gain (I'm paying close to 30% in tax). But when I tried to choose

'Short term (Box C)', I'm paying more than 40% in tax. Can someone explain

to me what's going on here?

Is it possible for me to pay long term gain on mutual funds placed in a

foreign country?

[Mike9241]

check your entries and then check form 8949 to make sure the sale is appearing in the long-term section.  capital gains of foreign stocks are not treated any differently than domestic stocks for the tax rate applied. 

only the 8949 code box will accept F.  the holding period box only accepted S or L or blank

[FangxiaL]

It sounds like you were a shareholder of a Passive Foreign Investment Company (PFIC). There is no long-term capital gain treatment. The gain or loss is calculated on a daily basis, and loss in prior year is not used to offset any gain and gain is taxed at ordinary income tax rate. In other words, no LTCG treatment.

You need file Form 8621 if you receive certain PFIC direct/indirect distributions. 

Instructions for Form 8621.

[LXT]

Thanks for prompt answer. In Form 8949, it shows '(F) Long-term transactions not reported to you on Form 1099-B' is checked, in Part II.

[LXT]

I'm pretty sure they are not PFIC. But the question is how TurboTax knows they are PFIC?

There is nowhere to for me to choose. 

Another question: do I need to mail Form 1099-B to IRS since all the sales are not reported to IRS?

[LXT]

Hi @FangxiaL,

I just did an experiment in TT: I added a new stock sale (loss) which offsets the total capital gains to ZERO.

I get the amount of tax I need to pay. Then I added another new stock sale with a capital gain of $10,000.

I get another amount of tax I need to pay. The difference in tax between ZERO capital gain and $10k capital gain becomes $2,880, which means tax rate of 28.82%. In Form 8949, Box F in Part II is checked and Schedule D also indicates it's Long-Term Capital Gain. Why I'm not paying long term capital gain tax?

[LoganathanB]

Go to the Dividend/Capital gains worksheet. 

It will show you how the capital gains tax is calculated.

In the TTDesktop 

• Open your tax return
• Switch to forms mode
• Go to Dividend/Capital Gains Worksheet on the left side

Click on the link for more information

Capital Gains Tax

[LXT]

Thanks!

From the capital gain worksheet, I can see that the capital gain is taxed at 15%, which is correct.

But besides the capital gain tax, do I need to pay other taxes on the capital gain?

[JohnB5677]

Possibly,  When Americans buy stocks or bonds from a company based overseas, investment income including interest, dividends, and capital gains are subject to U.S. income tax. However, the foreign home country may also impose a tax.

The Foreign Tax Credit allows you to use all, or at least some of those foreign taxes to offset your US liability.

To post the Foreign Tax Credit Online:

1. Deductions & Credits
2. Scroll to Estimates and Other Taxes Paid
   1. Select Foreign Tax Credit
3. Follow the interview

[LXT]

One thing I think I forgot previously is that I have to pay capital gain tax in California where I reside.

Where can I find the capital gain worksheet for state tax to understand how it's calculated?

[ErnieS0]

California treats capital gains the same as any other income. There is no special rate for capital gains. Everything is included in federal adjusted gross income, which is the starting point for California state income taxes.

See Capital gains and losses