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A taxpayer, who resides in the US, owns foreign accounts in

Brazil & pays taxes on...
A taxpayer, who resides in the US, owns foreign accounts in Brazil & pays taxes on the capital gains of 15% in Brazil. She filed Form 8938 with her Form 1040. Does she have to report the capital gains on Schedule D & pay US taxes on them also?
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Answered in 37 minutes by:
10/9/2013
taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 777
Experience: Licensed CPA, MA, MST with 31 years' experience. Teach Accounting and Tax courses at Masters level.
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Welcome to Just Answers! Thank you for giving me the opportunity to assist you! I will do my best to help!

 

The United States has no tax treaty with Brazil, so there is a possibility that the Taxpayer will pay double taxes on the gains.

 

If the capital gains are foreign, i.e., earned in Brazil, or from the sale of Brazilian investments, then the gains are taxable in Brazil, but the Brazilian income tax paid on them can be claimed on the U.S. tax return as foreign tax credits on Form 1116, to offset the U.S. tax on that income.

 

However, if the capital gains are from the sale of U.S. stocks or mutual funds, then the income is considered U.S.-sourced. In that case, they are taxable in the U.S., and foreign tax credits cannot be used to offset the U.S. tax. However, if these U.S.-sourced gains are taxed in the U.S. and Brazil, there should be some mechanism on the Brazilian income tax return to claim the U.S. taxes as credits against the Brazilian tax.

 

I mention the U.S.-sourced issue as I have several clients with investments in U.S. stocks that they purchased on the London (or other) exchanges, and hold in foreign accounts. The fact that it is a foreign account does not mean that it does not hold U.S. assets.

 

So, the gains DO have to be reported on the U.S. tax return, Schedule D. If the assets that generated the gains were earned in a foreign country, the Brazilian tax that is paid can be used to offset the U.S. tax on the income, so there won't be any double taxation.

 

I hope this has answered your questions! If you have any more, please feel free to ask away! If you have found my answer helpful, please rate me highly. I would appreciate it!

 

Again, thanks! Have a great weekend!

 

Roger

taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 777
Experience: Licensed CPA, MA, MST with 31 years' experience. Teach Accounting and Tax courses at Masters level.
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