8891 & RRSP Loss Post Defferal

Protazoid · Post by **Protazoid** » Wed Oct 01, 2014 7:21 am

Hello,

Have several questions on how to properly report RRSP income from tax form NR4 as resident alien in US on greencard.

Moved to USA in Nov 2012.

On 2012 tax return filed 8891 with balance of $18 873 ($USD) at end of year. Exchange rate was year end of roughly 1-1.

In 2013 I cashed out my RRSP, final balance of $18915 in the middle of April.

Question #1.

What exchange rate should I use? Do I have the option of reporting the $18915 in either the exchange rate of when the withdrawal occurred (April 15), or yearly average as reported by IRS?

Currency was not converted to USD and used to pay Canadian debt.

Question #2.

How do I report the taxable portion? Should I calculate the Canadian dollar gain and then convert it to USD? Or should I convert the distributed $CAD amount to $USD from exchange rate above, and then take difference with deferred amount?

Question #3

If the later in #2 I get between $850 to $1200 loss from deferment amount depending on exchange rate used. Can I take this as a capital loss? If so how should I report it? Should I put a negative taxable amount in 8891-7b and propagate to 1040-16b, or should I add to Schedule D / form 8949 and then propagate to 1040-13.

Question #4

My scenario makes the foreign tax credit not useful. But I can still deduct the entire amount of the RRSP withholding tax reported on the form NR4 right, assuming I use the same exchange rate?

Thanks!

nelsona · Post by **nelsona** » Wed Oct 01, 2014 8:43 am

This is what you must do:
1. Figure out what your book value of your RRSP on the day you became a US taxpayer (that was either some day during the year if you filed dual-status, or Jan 1 2012 if you filed a normal full-year 1040, plus any contributions you made after this date. For cost basis, The exchange rate you use is that of the day you became taxpayer anf for any deposits it is the exchneg rate on the day you made it.
This has little to do with the year end value you put on the 8891, so that is not useful information. It is the cost basis (not value) that is important.
2. The proceeds from your RRSP are the gross amount, before the 25% tax, in USD on that day. Same for the tax.

On 8891 you report the figure from #2 on line 7(a), and you report the difference (#2 -#1) if positive, on 7(b) this is your taxable amount. These will go to line 16a/b of 1040. They are not capiatl gains or losses.

You probaly don't have a loss if you correctly find the cost basis, but if you did, the loos goes on schedule A, miscellaneous loses.

For the foeign tax treatment, since you will either have no net income or a very small amount on 16b, then, as you suspect, the Cdn tax, using the same exchange you did on #2 above, the one for that day, you will get no beneft in using it as a credit on form 1116. So, you will probaly be better off using the tax as a deduction on schedule A, foreign tax.

So, you first taask is to determine (a) your tax starting date, and (b) wha tthe cost basis of your RRSP was on that day -- not the FMV, and not the cost basis on any other day.

Protazoid · Post by **Protazoid** » Wed Oct 01, 2014 9:16 pm

Thanks.

What was very helpful.

I elected to file as dual status last year, and didn't make any contributions after my arrival in the USA.

That makes the math easy.

So my gain (loss) would be:
Value in USD on day of withdrawal - Value in USD on day I entered USA

nelsona · Post by **nelsona** » Thu Oct 02, 2014 12:08 pm

Be careful to what I said. It is not the fair market value on day of arrival, it is the cost basis, or book value on that day.

Protazoid · Post by **Protazoid** » Fri Oct 03, 2014 1:32 pm

Thanks again.

The cost basis would be contributions plus realized gains correct?

Unrealized gains would be excluded?

nelsona · Post by **nelsona** » Fri Oct 03, 2014 2:34 pm

Correct. Cost basis of what you owened when you entered US. No need to track all the way back to contributions. Take aht you had when you arrived and figure what it cost.