Foreign Tax credit for RSUs received while working abroad and sold while in the US

[Daph3]

Hi,

I am a US citizen since birth. I lived outside the US for a few years and I received RSUs which fully vested before I moved back to the US.

I sold those RSUs a year after moving back to the US and paid taxes abroad (there is a tax treaty).

I received a 1099-B for 2023 with nothing but the proceeds shown. (No cost basis or any info, all "Undetermined")

1. How do I report the sale? (When I report the 1099 -B it creates a significant tax liability obviously) 

2. How do I claim the credit for the foreign tax paid? 

3. The foreign tax paid is higher than any tax liability here in the US so does that mean I will owe no tax for the RSUs that I sold?

@ThomasM125 

@AmyC 

@DaveF1006 

Your help will be much appreciated.

Thank you

[AmyC]

1. You will report the 1099-B but change the basis to the correct amount.

2. The credit is claimed on Form 1116. See About Form 1116, Foreign Tax Credit  Page 2 shows taxes eligible for credit. Beware the special issues with tax treaties and pub 514. See About Publication 514, Foreign Tax Credit for Individuals

3. If you claim a credit on schedule 3, line 1 it  will carry to your 1040 and reduce your liability. If the US tax is lower than what you paid, the credit will be the US tax which would negate the tax on the sale.

[Daph3]

Thank you!

My RSUs proceeds were categorized part income and part capital gains.

I paid both income tax and capital gains tax when I sold my RSUs.

Do I report the income value as "foreign earned income and the difference (capital gains) on 1099-B?

That's what I did but the foreign credit seems to be very low compared to the tax paid. (not even half)

Also, do I report the foreign tax withheld as tax paid? The withholding was very high and I will need to file a report and see if I can get anything back do should I report withholding as tax paid and then if I ever get anything back report that as income??

[DaveF1006]

Yes, you will report the income as foreign earned income and the capital gains in the investment portion of your return as you suggest. The reason why your Foreign Tax credit may appear low is that your US tax liability may have been less than your Foreign Tax.  If this is the case,  then the full amount of your foreign tax was not utilized this year and the remainder is a carryover for the next ten years.

The foreign tax withheld is reported as a foreign tax and will be reported in the foreign tax credit section. There is no other special treatment afforded to you other than to try to reclaim it as a foreign tax credit. From what you have already told me, I gather that you haven't reported this yet. Once reported, it seems that it will add to the carryover amount for the next ten years.

@Daph3