Capital Gains and Losses

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A US citizen living abroad can take earned income credit for…

Second opinion] A US citizen...
Second opinion] A US citizen living abroad can take earned income credit for earned income. But what about other type of income which is not in earned income category but you still pay tax to the foreign country as you are resident there? For example, capital gain from stock trading. So while you take the credit for earned income, at the same time can you also take foreigm tax credit, for that stock trading, since you could not include it in earned income exclusion?Question 2- in your first year abroad, if you only have capital gain income that you pay taxes to the foreign country, does it mean you are choosing the foreign tax credit option and for the coming years you are stuck with that option even for you have earned income later after you find employment in the other country? I saw a 5 year limit on publication 54, does it apply to changing both ways or just from earned income exclusion to foreign tax credit?
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3/21/2018
bkb1956
bkb1956, Enrolled Agent/Real Estate & Corporate Paralegal
Category: Capital Gains and Losses
Satisfied Customers: 5,820
Experience: 20+ years of experience as a tax preparer; 30+ years of experience as a real estate and corporate paralegal
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Welcome to Just Answer. My name is ***** ***** I will be happy to provide you with a second opinion, which you requested.

As to question 1,

The Foreign Tax Credit can be used to offset any foreign income you were not able to exclude because of the annual limit of the Foreign Earned Income Exclusion.

As to question 2,

You are not locked into any option. If the Foreign Tax Credit is your only option, you can use it. If you have earned income in the future, you can use the Foreign Income Exclusion.

Please let me know if I can assist you further.

Thank you and best regards,

Barb

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Customer reply replied 1 month ago
Also, I like to know for info... for a tax that we pay to a foreign country, is it at our option to show this paid foreign tax to US or not? I mean, for example I have a little amount of capital gains from US stock trading. I will of course show it as an income to the US on my US tax return. BUT since I resided in foreign country in 2017, I may have to pay its tax to where I am at now, due to tax treaty between US and Turkey. I am still checking that. Or may be I don't have to, since it has US origin and I am already showing it to US. If I end up having to pay this tax to here, do I need to show this tax on my US tax return, or US doesn't care if I show it or not, as long as I show them the income itself? I ask because I am still checking this and I plan to file my US tax return soon. For me it will not make difference this year, as I am below 10K and I will not owe tax to US anyway but still I like to know...

You do not have to claim the credit for taxes paid to a foreign country on your US tax return.

bkb1956
bkb1956, Enrolled Agent/Real Estate & Corporate Paralegal
Category: Capital Gains and Losses
Satisfied Customers: 5,820
Experience: 20+ years of experience as a tax preparer; 30+ years of experience as a real estate and corporate paralegal
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bkb1956
bkb1956, Enrolled Agent/Real Estate & Corporate Paralegal
Category: Capital Gains and Losses
Satisfied Customers: 5,820
5,820 Satisfied Customers
Experience: 20+ years of experience as a tax preparer; 30+ years of experience as a real estate and corporate paralegal

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