wife who is u.s. citizen dad passed in 2022. He was canadian citizen. She inherited half of his tax free retirement accts (RRIF & TFSA). Between when he passed and the account were liquidated and she got her half of the distribution. The accounts increased in value by $10k. Bank in canada paid 25% taxes on the $10k as gross income and send us NR4 with the $10k as gross income and taxes paid of $2,500 to canada tax authority.
The $10k from my standpoint was a short term capital gain from the stock sold and because my wife is a non-resident of canada, they automatically took out 25% for taxes. All amounts are in canadian dollars.
How do I report this in Turbo Tax/u.s. tax return? My initial analysis says: 1. report the $10k in u.s. $ as short term capital gain on schedule D and report the foreign tax paid in U.S. $ on form 1116 for a tax credit. Also assume form 3520 Part IV needs to be filled in if over $100k.
Have tried to find tax professional for help, but so far no luck.
Thanks
Ron
If your wife inherited the money from her dad, the only taxable portion would be an amount that was earned after he passed until it was cased in and distributed.
The Canadian issue is a different story. You would have to file a Canadian tax return.
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thanks for the feedback. I assume that on put the short term capital gain (increase in stock value from death date till distribution) as a short term capital gain on schedule d and use form 1116 to enter the taxes paid to canadian tax authority? In addition, form 3520, if the amount distributed in 2022 is over $100k?
thanks
Ron
Yes, you are correct. The gain would be short term if you held it for less that one year. TurboTax will categorize it properly based on the dates you enter for date acquired and date sold.
Form 1116 will be generated by TurboTax when you enter the foreign income and foreign taxes paid.
You will need the form 3520 since the distribution came from a trust.
I am in the identical situation as you described. My Mom passed away end of 2023 but I was given an NR4 for the income generated until early 2024. May I ask how you filed in the USA using TurboTax? I have seen posts that say the income is Retirement Income and others that say make up a 1099.
The code for my NR4 is 06. Appreciate anything you can share.
NR4 code 06 is death benefit from a pension plan. The income should be entered on the same type of tax form the US would use. The US equivalent is a 1099-R with box 7 code 4 for death benefit.
Reference for code: Filling out the NR4 slip
That being said, entering the income on your return as other income with the description is an acceptable alternative and easier to accomplish. Follow these steps to enter the income:
Thanks very much. I followed your advice and simply used the Misc. Income section to report the NR4 Code 06 income.
Not to be greedy with my questions, but can you tell me how to claim the foreign tax credit for the tax I will pay in Canada?
The foreign tax credit section of my return TurboTax walks me through getting a credit for foreign taxes reported on my 1099-DIV but I don't see where to add foreign taxes paid in Canada.
(For interest to some readers: I have filed a Canadian Non Resident income tax form and am waiting for the results. What I learned was that non-residents of Canada do not get deductions so that we pay 15% income tax from dollar 1 up until $55k, I think. Since I was below this threshold, I expect to pay 15% income tax in Canada and get a refund because 25% was withheld. I will wait for a few weeks to confirm my calculations before filing in the US to avoid needing to do an amendment in the US)
Yes, here is how to claim your foreign tax credit.