Is there any foreign tax credit for stock sell?

[huangbiz2009]

I lived in a foreign country.  I paid foreign tax on capital gain from selling stocks.  How to report this to reduce my tax by taking foreign tax credit or sth else?  I also paid foreign tax on wages received in the same foreign country.  I know this foreign tax should be reported as general category income.  Shall I report foreign tax on selling stocks in another category?  I didn't find such a way using turbotax.  If I add foreign tax on capital gain from selling stocks in the same category as foreign tax on wages as general category income, I didn't see any further reduction of tax I owned. 

Thanks a lot!

[Critter]

https://www.irs.gov/individuals/international-taxpayers/choosing-the-foreign-earned-income-exclusion

[huangbiz2009]

Thank you.  I found the foreign earned income exclusion only can exclude wages, can't exclude capital gain from selling stocks.  Using turbotax, I first chose the  foreign earned income exclusion to exclude wages, then I found there was almost no tax reduction whether I took or not took the foreign tax credit for the foreign tax paid for selling stocks.  In other word, the foreign tax paid for selling stocks almost no use.  Is there sth wrong?  Thanks a lot!

[Hal_Al]

No, there's nothing wrong. For somebody with little taxable income (because of the foreign earned income exclusion), long term capital gains are taxed at 0%. The foreign tax credit is non-refundable, so if you have no calculated income tax, the credit is of no use.

[huangbiz2009]

Sorry, I might miss an important info.  This stock is Inventive stock option (ISO).  This income was treated as wages in this foreign country.  I already paid around 25% tax for this capital gain.  I used turbotax to calculate my US tax, I found I would pay 20-25% tax for this part, no matter I took the 25% foreign tax credit or not.   The 25% foreign tax I paid is almost no use.  Is sth wrong?  Thank you very much!

[Hal_Al]

Still not wrong. Since it was treated as wages, you took the foreign earned income exclusion. You can't take a 2nd tax benefit, the foreign tax credit, on the same income.

[huangbiz2009]

But as my understanding, it's different in US, the foreign earned income exclusion can only exclude wages, the ISO should be reported in "stocks, Mutual Fund , Bonds, other "part.  If so, I can't add this part in the foreign earned income exclusion, can I?  This is confused to me, it was taxed as wages in this foreign country, but I don't know whether it can be treated as foreign tax or not in US.  At least, there is a separated part for "stocks, Mutual Fund , Bonds, other " in Turbotax (of course, this maybe only means the ISO in US, not foreign country).   If I can exclude this part as wages in the foreign earned income exclusion , it did work, and reduced a lot of tax.   If not, I don't know where to take the advantage of the foreign tax I paid for this part.  Could you please give me more advice?  Thank you!

[Hal_Al]

For info on ISOs, see <a rel="nofollow" target="_blank" href="https://turbotax.intuit.com/tax-tips/investments-and-taxes/incentive-stock-options/L4azWgfwy">https:...>

[huangbiz2009]

Thanks a lot! I got a lot of useful info.  However, my ISO is not regular ISO (or maybe it's not ISO at all).  I was granted some stocks at a discounted price.  I must actually pay money to buy those stocks at one month later in the same calender year.  50% of those stocks will be locked for 1 year, the other 50% will be locked for two year before I can sell them.  If company's or my performance doesn't meet some requirements, those stocks will be taken back by company at the original discounted price.  According to ISO requirements, I need to report  Alternative Minimum Tax (AMT) for the year I excise it.  I guess I will be charged some tax for this. How about if this stocks is finally taken back by company at the original discounted price?  Thank you.

[huangbiz2009]

Any one could help me solve this problem?  I'm very confused about this.  I even don't know whether this is ISO or not, or whether it could be treated as regular stocks, or be as wages as in this foreign country.  Thanks.

[Hal_Al]

You should probably ask a fresh question and try to describe the situation differently. I think nobody else is jumping in because your question is not clear

[huangbiz2009]

thank you for your suggestion.

[Hal_Al]

It usually works this way:
1. You are granted an option to buy the stock. The value of the option may (or may not) be treated as imputed income and taxed as wages.
2. You exercise the option and buy the stock at a discount. The discount is treated as imputed income and taxed as wages.
3. Your cost basis is the previously imputed income plus what you paid for the stock.
4. When you sell the stock, your capital gain is the difference between what you sell it for and your cost basis

What I'm hearing is you bought some stock, at a discount, and the value of the discount was included as additional  wages. You paid foreign tax on that. You then excluded that amount from your US tax return under the foreign earned income exclusion. You already got your tax break. You don't get a foreign tax credit, in addition to income exclusion, at this time.

Later when you sell the stock, at a gain, and pay foreign tax; you can them take the foreign tax credit (line 48 of form 1040).

If that's not the situation; you need to better describe what’s going on

[huangbiz2009]

Thank you!  My concern is that these stocks are not really mine yet.  If my company's or my performance is not satisfied, my company will take back these stocks at the original price that I paid.  I won't get any capital gain from these stocks, so I shouldn't be charged any tax for this.   If I already paid tax for this discount, how can IRS refund me this tax later?

[Hal_Al]

You got something of value and paid tax on it. At this point there is no additional tax refund from the IRS, now or in the future.

The IRS does have a procedure, for a tax credit or deduction, if  in the future, you are required to make repayments of  money previously taxed by the IRS (not by a foreign tax agency)