How to report sale of foreign investment

[mcoetzer87]

The background:

We got a CPA do to our taxes last year due to some complicated calculations that were needed. She also reported our foreign investments (a retirement annuity and provident fund (like a pension/retirement fund)) on the Statement of Specified Foreign Financial Assets Form 8938. The total amount for 2019 was around $18,000 (note we also had foreign property that year that was sold). 

When I started completing our taxes for 2020 on Turbotax it indicated that I don't need to fill out Form 8938 because our amount of foreign investment is not over the threshold, but I do need to complete a FBAR (this I have submitted). My husband closed his provident fund and transferred the money over in 2020. With the exchange rates and taxes he had to pay, the final amount he received was $11,000 ($17,000 on 2019 tax return). 

The questions:

(1) Should these investments and the sale of the one (i.e. loss) be reported for US tax in 2020? If yes, what form should be completed.

(2) If no to the above will the IRS have issues with the Form 8938 having been completed in 2019, but not in 2020?

[JoannaB2]

Yes, US citizens and resident aliens must report worldwide income on their income tax return.  The sale of any investment is reported on 1099 B form. If the sale was completed and had been reported in 2019 income tax return, then there's no need to report the sale on current tax year. The transfer of funds over to the US in 2020 needs to be reported by filing FBAR on FINCEN Form 114 for tax year 2020.

See, where do i enter 1099 B, for more information.

[mcoetzer87]

We don't have any US Tax forms (i.e. 1099, etc.) for the full distribution of IRA that was held in the foreign country by a foreign financial group. The distribution was made in 2020, so we have to report it somewhere this year. We have completed the FBAR for 2020. 

[LinaJ2020]

Yes, if you are a US citizen or resident, you are required to report worldwide income including the sale of foreign investment on your US taxes.  

In TurboTax online, here are the steps:

• Sign into your account and select Pick up where you left off
• At the right upper corner, in the search box type in investment sales then Enter 
• Select Jump to investment sales 
• On screen, Did you sell any investments in 2020 ?, select Yes to follow prompts
• Under Choose the type of investment you sold, select Everything else  (if it's an investment property)  
• Enter your investment property information 

The sale should be reported on Schedule D of your Form 1040 generating a capital gain or loss.  For details, click here: Capital gains and losses  You could also be required to submit IRS Form 8938, Statement of Specified Foreign Financial Asset if you meet the criteria.  A Form 8938 is used when you have specified foreign financial assets and the total value of all the foreign assets in which you have an interest is more than the appropriate reporting threshold.  For details, click here: https://www.irs.gov/instructions/i8938

For the IRA distribution held by foreign group in foreign country, it might be tax treaty related.  Generally, foreign pensions are taxable to US citizens or residents.  However, some foreign pensions might not be taxable if it is covered under any tax treaties between the foreign country and the United States.  This is out of scope for our advice.  I will suggest you to consult a specialized professional for verification.  

If is taxable, you will need to create a substitute form 1099-R. 

Here are the steps:

In TurboTax online,

• Sign in to your account and select Pick up where you left off
• At the right upper corner, type in 1099r, then Enter
• Select Jump to 1099r
• Follow prompts
• Next screen, Choose your bank or brokerage, select I'll type it in myself

• Follow prompts.  On the screen "Tell us if any of these uncommon situations apply"

• Check the box I need to prepare a substitute 1099-R and follow the prompts.  

As to the Federal ID, most of the foreign pensions often do not have the ID number.  Please try entering nine 9s.  If electronic errors occur due to 1099-R data entry, enter the pension under Miscellaneous income, see instructions below. As long as the IRS has the pension reported and included in total income, it is not problematic. 

• To your left, select Federal
• From the top, select Wages and Income
• Scroll down to last section -Less Common Income -select  Miscellaneous Income, 1099-A, 1099-C- Start 
• Next screen, scroll down to Other Reportable Income- Start
• Follow prompts

 For more information, see http://www.irs.gov/Businesses/The-Taxation-of-Foreign-Pension-and-Annuity-Distributions

If it is not taxable to you,

• report your full amount as instructed above in the 1099R section. Then enter the treaty exempt amount as negative amount (e.g. -5000) under Other Reportable Income as instructed below.

• Download and fill in a Form 8833 from IRS to claim an exception.  https://www.irs.gov/pub/irs-pdf/f8833.pdf

• You cannot e-file.  You may still use the TurboTax program to prepare all your tax forms, but you would need to print them out and submit by mail along with form 8833.