What forms are required for sale of foreign investment property (never rented) in country w/o tax treaty? Long term capital gains will be paid in foreign country of 20%

[richardR1]

Can I offset tax paid with us tax due 20%, can I include travel related costs, offset with long term capital losses for stock? what forms and ais there an example?

[Opus 17]

If you are a US person for tax purposes (citizen, green card holder, or resident alien) then you file your tax return according to US laws no matter where the income was earned.  In this case, you have a capital gains transaction and you will pay capital gains tax if you have a gain (selling price more than cost basis).  This will be on schedule D and form 8949, and all versions of the turbotax program on Mac or PC, and the Premium version online, will automatically include the forms.

Your gain is the difference between your selling price and your adjusted cost basis.  There are some adjustments to basis allowed, but your travel costs are rarely allowed as adjustments, especially if this was not income-producing property.  Cost basis is discussed here.

https://www.irs.gov/pub/irs-pdf/p551.pdf

If you pay tax on the same income to a foreign government, you can claim a deduction or credit to offset the taxes on your US tax return.  Assuming that both countries calculate capital gains in the same way, you will either pay 15% or 20% in the US.  Your credit will never be more than your US tax would have been.  For example, suppose the gain is $100,000, your foreign tax is $20,000 and your US tax is $15,000.  Your maximum US credit will be $15,000.

Also beware, not all countries calculate taxable gain in the same way.  For example, some countries allow a cost basis adjustment for inflation, the US does not.  You calculate your foreign tax according to the laws of that country, and you calculate your US tax based on US tax law, even if the methods for calculating the gain, basis, and adjustments to basis are different. 

[pk]

@richardR1   fully agreeing with my colleague @Opus 17 ( for a very complete answer) , just wanted to add  that   the  double taxation relief ( through  foreign tax credit) is based on "double Taxation " clause  in the tax treaty  between   US and that other country.  Thus if  the country where you are  paying  capital gains  tax does NOT have a tax treaty with the US,  then there is no real mechanism for  claiming foreign  tax credit -- form 1116 does ask for  foreign income source country.   However, if you itemize  and use the foreign taxes  paid  in place of  State & Local Taxes -- SALT  ( with the current US$10,000 limit ) there is no such question.  It is somewhat of an uncharted territory -- I have not seen any  case law  (tax court) on this, yet.

Also please note that because  foreign currency etc. is involved,  any financial accounts that you own and / or have signature authority over  may come under  FBAR  ( FinCen form 114 on line only ) and  FATCA  ( form 8938 ( filed with your return ) may come into play.  While these are information only, have no tax implications,  willful violation can attract  onerous penalties.

pk

[richardR1]

Hi are you certain on 1116 and can’t claim a credit? I searched websites and irs  and there isn’t anything that states a tax treaty is necessary to claim a tax credit paid to a non treaty country . There are benefits to taxpayers but nothing to imply claiming tax credits is not allowed . 

[pk]

@richardR1 , I took this position because :

(a)  US tax treatment of foreign source income and taxes thereon is always  based on reciprocity

(b) if there was  no such restriction then why would you emphasize and include  "double taxation" clause in each and every tax treaty between the USA and the other country .  Each  and every  code section is for a reason ( even if we don't agree with the clause ).

(c) section 901 of  Revenue code :

"(c)Similar credit required for certain alien residents  

Whenever the President finds that—

(1)

a foreign country, in imposing income, war profits, and excess profits taxes, does not allow to citizens of the United States residing in such foreign country a credit for any such taxes paid or accrued to the United States or any foreign country, as the case may be, similar to the credit allowed under subsection (b)(3),

(2)

such foreign country, when requested by the United States to do so, has not acted to provide such a similar credit to citizens of the United States residing in such foreign country, and

(3)

it is in the public interest to allow the credit under subsection (b)(3) to citizens or subjects of such foreign country only if it allows such a similar credit to citizens of the United States residing in such foreign country,

the President shall proclaim that, for taxable years beginning while the proclamation remains in effect, the credit under subsection (b)(3) shall be allowed to citizens or subjects of such foreign country only if such foreign country, in imposing income, war profits, and excess profits taxes, allows to citizens of the United States residing in such foreign country such a similar credit."

So my conclusion stands.  At the same time I must admit that  I have no idea if the IRS actually checks the form 1116  to determine if the  foreign source country is one with a treaty or not.   Very few countries  do not have a tax treaty with the USA  ( one is Brazil ).

Does this help ?

[richardR1]

Someone responded that unless there is a tax treaty you can't claim the foreign tax credit or deduction but I see nothing supporting that conclusion. Tax treaties allows for certain exemptions none of which is being claimed but the basic premise of not having to pay the same tax twice (even if calculated differently as you note) appears to hold. Your thought?

[pk]

@richardR1  I took that position -- see my answer above including quote from  Statute.

The logic is really no different  than  the  US states  do not recognize  taxes paid to another country but do recognize  those paid to another  (US ) state.

Is there more I can do for you.