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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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I am a US citizen living abroad and i have redeemed a goldman

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I am a US citizen living abroad and i have redeemed a goldman sachs international wholesale fund March 2012 (AUD$36000). It was purchased in March 1999 (AUD$50000). what forms do i use to calculate/report this transaction?
Submitted: 12 months ago.
Category: Tax
Expert:  Lev replied 12 months ago.

Lev :

Hi and welcome to our site!
You would need to report the sale transaction on form 8949 - that is a new form starting 2011 - and then - you will transfer results to schedule D. Here is this form -http://www.irs.gov/pub/irs-pdf/f8949.pdf
The gain is equal to (selling price) MINUS (basis).

Lev :

For US tax purposes the sale price is converted into USD based on currency conversion rate on the sale date.
There will be some complication in determination of your basis.
Your original basis is your purchase price converted into USD based on currency conversion rate on that date.
If you had all fund distributions reinvested - these amounts should be added to your basis.

Customer:

the gain is equal to the selling price (in us dollars) and the basis (how do i calculate the basis and convert into US dollars?) so the original basis is the amount of 50000 coverted into usd using an exchange rate in 1999?

Lev :

Yes - the original basis is your purchase price (AUD$50000) converted into USD based on currency conversion rate on the purchase date.

Lev :

There will be additional gain or loss based on currency conversion rate.

Customer:

so is use those two forms and i have a USD gain of aprox $$$ can i offset this gain against foreign tax credits i have accumulated

Lev :

Yes - you may claim a foreign tax credit - if any income is subject of US and foreign income taxes - you may claim a foreign tax credit - thus effectively will eliminate double taxation of the same income. Use the form 1116 -http://www.irs.gov/pub/irs-pdf/f1116.pdf please find instructions here - http://www.irs.gov/pub/irs-pdf/f1116.pdf


The credit is limited by the US tax liability on the same income - the form 1116 is used to calculate the amount of credit. Means - if tax liability abroad is higher - there will not be US taxes on that income, but if tax liability abroad is lower - in the US you will pay the difference after the credit will be applied.

Customer:

is the income passive category? I have accumulated tax credit for passive income of 12,000 aprox

Lev :

Yes - for purposes of calculating a foreign tax credit - that is passive income.

Customer:

so i have to include the gain on 1116 form as well?

Lev :

If you have a gain - yes - that will be included into calculation of foreign tax credit.
Also you will include a section 988 gain or loss realized from changing of currency conversion rates.

Customer:

i don't understand the section 988 gain or loss for currency conversion rates. don't i just convert and subtract?

Lev :

In additional to capital gain that we discussed above - you might have a gain or loss because currency conversion rates are changing. That is a separate gain or loss.

Customer:

could you explain the currency conversion rates might be changing? i thought it would be to convert 50k to USD on the date of purchase then the redemption 36k on date of redemption?

Lev :

That is correct for calculating your capital gain or loss.
However - because your transaction are not in US currency - you may have additional gain or loss.
For instance you sold for (AUD$36000) and used that value and currency conversion rate on that date to calculate your gain.
However - for instance - two months later - you used that amount to purchase another shares - and the conversion rate changed - so - you recognize so-called "section 988 gain or loss"

Customer:

i haven't paid tax on this gain but i can apply previous tax credits to this gain from tax paid on interest and dividends?

Lev :

You may apply foreign tax credits carried over from previous years if that income is taxable abroad.

Customer:

it is taxable income but the carried forward tax credits are from interest and dividends - i can use this to offset capital gains ?

Lev :

Yes - all these belong to "passive income" category for purposes of foreign tax credit - and carried forward tax credits fro that category may be used.

Customer:

ok thanks. where do i look for specifics on the currency conversion rate changes?

Customer:

and do i fill in 8949 then schedule d then form 1116 finally form 1040

Lev :

Here is IRS article - http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Currency-and-Currency-Exchange-Rates


Make all income tax determinations in your functional currency. If your functional currency is the U.S. dollar, you must immediately translate into dollars all items of income, expense, etc. (including taxes), that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. Use the exchange rate prevailing when you receive, pay, or accrue the item. If there is more than one exchange rate, use the one that most properly reflects your income. You can generally get exchange rates from banks and U.S. Embassies.


If your functional currency is not the U.S. dollar, make all income tax determinations in your functional currency. At the end of the year, translate the results, such as income or loss, into U.S. dollars to report on your income tax return.

Customer:

also i have made losses do i apply those to the basis? this is a loss in australia

Lev :

What type of losses do you have?

Customer:

sorry if you donot convert then i have a loss

Lev :

I am not clear what exactly you are converting and what are losses... Can you clarify with details?

Customer:

the fifty thousand less the thirty-six thousand in Australian dollars.

Customer:

i have to go may i contact again?

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22776
Experience: Taxes, Immigration, Labor Relations
Lev and 5 other Tax Specialists are ready to help you
Expert:  Lev replied 12 months ago.
1. (AUD$50000) is your purchase price back in 1099 - correct - so if you had any gain or loss on that conversion should be reported on your 1999 tax return.
2. (AUD$36000) is your selling price - you received this amount in 2012 - if you have any section 988 gain or loss depends how that amount was used and when.
3. Your gain or loss on the sale transaction for US tax purposes is NOT calculated in AUD. So - "the fifty thousand less the thirty-six thousand in Australian dollars" - is not your loss. You need to convert into USD each amount separately - and then you will calculate a gain or loss.
4. (AUD$50000) which is your original purchase price - is your basis. Please be aware that you need to add all reinvested distributions - that will reduce your gain or increase your deductible loss.

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