Understanding & Calculating Foreign Capital Gains Tax

Reading Time: 4 minutes

Dealing with cross-border taxes can often be confusing. Since you deal with the regulations of two countries, you may need to put in some extra hours to grasp the processes.

Foreign Capital Gains taxes are not the new concepts. The concept may appear as simple as possible; however, the rules involved under its umbrella can make the scenarios complex to understand.

In this article, we have thoroughly discussed capital gain taxes on your foreign property. Moreover, we have listed details about different regulations you may need to know and tax forms you may need to submit while filing foreign capital gains.

Basics About Foreign Capital Gain Tax

Consider a simple example; you bought a property in Canada. After some time, you decided to sell it. Any gain or loss you received after subtracting the cost basis (original value + processing fee) is called capital profit (in case of profit) or capital loss (in case of loss).

Foreign capital gains occur on your property and investment. Any physical commodity like a house or jewelry comes under the umbrella of property. Meanwhile, any stock or bonds you owe comes under the umbrella of investments.

However, the general rule remains the same.

If the selling price increases the cost basis, it will be categorized into capital gain, which is taxable by applying different rules of the IRS.

Types of Foreign Capital Gains

The IRS divides capital gains into two parts to impose taxes. There are two types of capital gains: short-term and long-term. In the coming section, we have defined each type of capital gain in detail.

a) Long Term Capital Gains

As obvious by the name itself, if you hold a property for more than one year, you will be taxed on long-term capital gains. You are required to report your long-term capital gains on Part II of Schedule D.

The taxation rates are different for both categories.

If you are dealing with long-term capital gains, you can avail reduced tax rates on your capital gains. The rate for reduced tax rate can be 15%. Moreover, it depends upon your financial situation, and in some cases, it can be 0%.

We would recommend consulting a professional CPA to understand your taxes correctly.

b) Short Term Capital Gains

If you hold your assets for one year or less than one year, you will be taxed on short-term capital gains. You are required to report your short-term capital gains on Part I of Schedule D.

Moreover, short-term capital gains are reported under your ordinary income tax rates.

Essential Points to Note While Calculating Your Foreign Capital Gains

The taxation process may demand any of your financial data to comply with different processes. However, we have gathered the top-3 general points you may need to note while calculating your foreign capital gains on your properties.

Points to Note While Calculating Your Foreign Capital Gains

1 – Calculating Your Cost Basis

The cost basis is the original price of the property plus any fee involved in the process of holding that property.

For example, you bought a property in Canada for $120,000. The cost was divided into two parts: the original price of the property ($110,000), and the sales tax imposed on your purchase ($10,000).

Moreover, you also spent $5,000 on the property maintenance.

The total cost basis in this scenario will be:

= Original Price + Sales Tax + Maintenance Charges

The total amount for the cost basis will be $125,000.

It’s also important to note that the cost basis does not always increase. In some cases, it decreases as well. For example, if you receive any insurance benefits on your property, you will decrease your cost basis.

While selling your property and calculating your foreign capital gains, it is necessary that you calculate your cost basis to decide if it’s a capital gain/loss.

2 – Purchasing/Selling Date and Holding Period.

As mentioned earlier, the taxation rates have variability depending upon the length of holding your asset (long/short term capital gains). You need to make sure that the holding period has been documented.

Moreover, alongside the holding period, you should take note of your selling and purchasing dates.

3 – Converting Your Foreign Currency into the U.S. Dollars

The IRS regulations demand you to convert your foreign currency to the U.S. dollar while calculating your capital gains and losses. You need to report your foreign capital gains by comparing them with the present market value of the U.S. dollars.

You need to note your selling price, buying price, and cost basis in the U.S. dollars. Your profits and losses are calculated in the U.S. dollars.

Reporting Your Foreign Capital Gains Taxes

To report your foreign capital gain on the U.S. tax return, you will use Schedule D of Form 1040.

Some of the points you may need to include while filing your capital gains:

  • Property details
  • Selling price
  • Purchase price
  • Selling date
  • Purchase date

You can reduce your taxable income by reporting net capital losses. Moreover, if your losses exceed $3,000, they will be carried forward to next year considering you haven’t claimed them on your tax returns.

Moreover, you can reduce your taxes by using the Foreign Tax Credit and Foreign Earned Income Exclusion.

It is also important to note that you can NOT use Foreign Earned Income Exclusion to take off capital gains taxes. However, the foreign tax credit can be helpful in such cases

Reduce Your Foreign Capital Gains Taxes with AkifCPA

At AkifCPA, we have spent years understanding the complex challenges of taxation. We make sure that people save their money with us.

To reduce your taxes and file them accurately, contact us today.

Facebook
Twitter
LinkedIn
Sign Up For Our Weekly Newsletter
*Email
AKIF CPA
5.0
Based on 107 reviews
powered by Google
Annie Phillips
Annie Phillips
12:35 10 Oct 21
Turn around time was amazing on the project I needed done. When you don’t understand all the different forms... communication is key and you will get that here. They are there to explain what and why you need it.read more
Meru Kapadia
Meru Kapadia
23:33 01 Oct 21
I usually don't write reviews much as everyone has different experiences, but definitely wanted to share the positive... experience I have had here and why I would recommend them to all my family, friends and co-workers.I got a referral for here from a friend, so thought of giving them a try over my old CPA firm. I have been going here for a couple years now and have to say they are top notch. They are always responsive and willing to work with me even when I am delayed. I generally like to ask a lot of questions and not once did I feel like they were annoyed by it and would very thoroughly and positively answer all my concerns with detail explanations. Even during the pandemic, they worked with me 100% virtual and it was seamless. Overall, I am very happy with this firm and will continue with them for the foreseeable future.read more
Kevan Shah
Kevan Shah
21:45 01 Oct 21
I’ve been going to them for 3 years now for multiple of my businesses. I changed to them after I had problems with my... previous CPA firm and I’m so glad I did! Best decision I ever made for my businesses. They have saved me thousands of dollars over the years as well as deal with my immensely complicated tax filling issues. No matter when I call, they always help answer all my questions (and trust me I have a lot) and put my mind at ease on all my concerns. I feel as if I am family the way they take care of me. The quality of their work has not changed; very consistent and professional. It is an understatement when I say I highly recommend them.read more
Maunil Shah
Maunil Shah
16:19 01 Oct 21
AKIF CPA is the best place for your tax needs! Saim has been easily available for my all my questions and concerns. ... Couldn’t ask for a better firm that provides excellent service and a familiarity with their clients. I always recommend family and friends to AKIF CPA!!read more
Shah Hussain
Shah Hussain
03:58 01 Oct 21
Hello AKIF CPA,I wanted to share my experience with you, your team and whomever may be reading this message. My most... humble thanks to you and your team for a being such great part of my success.You have done a fabulous job for us this year, and since you took over our books (during our most devastating times) you have literally taken weight off of our shoulders.Thanks for bringing everything up to date and also providing us with numbers or as you call it consultations, ahead of time so we could seal the holes.Great work!!!Shah H.read more
Sumit Dalwadi
Sumit Dalwadi
04:57 30 Sep 21
The professionals at Akif have been absolutely amazing! Quick to answer all the questions I had and always available... to offer their guidance.read more
Calvin R
Calvin R
20:21 29 Sep 21
I recommend these guys! I will be going back next year. They made everything simple and we understood what was... happening. There we issues with our taxes due to our previous accountant and these guys fixed everything. They answered our questions and service was always with a smile.read more
Ammoria Daniels
Ammoria Daniels
02:11 16 Sep 21
We contacted Akif with an urgent matter regarding corporate taxes. Akif immediately understood what was needed and... within days had everything ready to sign. The level of service we received was amazing and unmatched. Waqar expertise in trucking industry made our situation seamless. His communication was outstanding; I heard from him daily and could have been completed sooner if I was as fast as he was 😃 Highly recommended!read more
Joe Paneitz
Joe Paneitz
18:30 18 Aug 21
What an absolute pleasure to work with this CPA firm. My business is already seeing such a positive impact and growth.... I cannot believe I didn't connect with them sooner. This firm is helping in so many ways! 5 stars is an understatement! Thank you so much for your help AKIF CPAread more
Helptest ARCpoint Labs
Helptest ARCpoint Labs
15:02 18 Aug 21
The firm is quick, responsive, and has the latest technological software. Thus far, I have been with them for 3+ years... and will continue to work with them even after relocating. They make it easy even when I'm miles away. Would highly recommend them.read more
Luz Tipaz
Luz Tipaz
16:06 13 Jul 21
Saim and his team are the best CPAs in town. I have been their client for years. All started when I needed help with... company structure with multiple companies and then accounting and Taxes. I have been very happy ever since. Thank you AKIF CPA.read more
Maria perez
Maria perez
18:31 08 Jun 21
Me and my husband have been getting all of our personal Taxes, business Taxes, monthly bookkeeping, accounting and... payroll done with AKIF CPA. Recently, we had more stuff come up and had detailed analysis done on capital gains, single family rentals (SFR) and business disposition. You will only know how great this CPA company is until you have worked with them and given them a chance. Words can’t describe our experience. AKIF CPA gets the job done every time - very reliable, professional and affordable.read more
Afnaan Amin
Afnaan Amin
22:14 02 Jun 21
Very good experience, we had unique situation in regards to cross border income as Canadians currently residing in the... US. Income on both sides of the border through completely different channels. Everything was very easy and completed timely, I also had lots of random questions and Mohammad provided top notch service along the way and even after we finished our taxes!! Highly recommended.read more
Ryan Paton
Ryan Paton
10:56 08 May 21
I moved to the USA from Canada late 2018 as part of a promotion/relocation for work. For my 2019 returns, I used an... accounting firm recommended by the local Canadian social club in my city, which was a terrible experience. They were slow to respond to inquiries and would follow up in piecemeal requests which dragged out my return process over several months, often asking for information I had already provided.For the price I paid, I vowed to find better service. I found Mohammad online and decided to reach out. Mohammad was extremely responsive, took care of my US and Canadian returns as well as my wife's business returns in a timely manner. Overall, it was a very positive experience and I would recommend him to another in my situation.read more
Tuan Vo
Tuan Vo
01:59 20 Apr 21
I relocated to Texas from Alberta, Canada and needed a CPA to help me with my cross-border taxes as I was not happy... with the CPA that I used previously. During my interviewing process to find another CPA, I had good feedback from Mohammad as he was able to answer my questions regarding my unique tax situation with expertise, and importantly to me, in a timely manner. I decided to use his services for the current tax year and I have nothing but compliments for the work Mohammad provided. If you are in need of a professional cross-border CPA, I highly recommend reaching out to Mohammad Akif.read more
See All Reviews
js_loader
Archives

Crypto Tax & Accounting Newsletter Signup

*Email

Cross-Border Tax Newsletter Signup

*Email