Large Loss on Foreign Stock & Effect on Foreign Tax Cred

[joeinusa]

With US stock losers, I often have bought more and sold the losers 31 + days later using the designation tool my broker has to properly identify which stock you are selling.

With Canadian and other stocks, I have been realizing losses on foreign stock as I had gains on other foreign stocks.

However this year I may have a flood of unavoidable losses on Canadian stock.

Question: Am I correct in thinking that these foreign losses if large enough (about $80K) will cause negative impacts to my foreign tax credits for several years? Completing 1116 has been giving me about $2000 tax credit each year based on taxes withheld on dividend income on Canadian and other foreign stock.

If these losses are realized. I do have the option of realizing some gains on other foreign stock if that avoids losing the tax credits. However I did have some other plans for at least some of those gains as I was planning to gift some of those to my sons over next couple of years to help them pay their tuition. They would pay little if any tax on the gains as long we make sure that these gifts are not large enough in those years to make them dependents and cause “kiddie taxâ€￾.

We are all North Carolina residents since 2001.

[nelsona]

Cdn stock is not considered foreign for US tax puposes.

Nor is your Cdn stock gains taxable in Canada, so there is no foreign tax to talk about.

[nelsona]

As to other foreign stock, you may need to refer to those countries treaties, but generally, unless the gains would be taxable in that country, the gains and losses are not treated as foreign.

You will need to generate passive foreign-sourced income to use these credits.

For canada, for example, the only cap gains that would considered Cdn would be real estate or privately held companies. I'm sure similar rules apply to other countries.

I'm sorry if you were misled into thinking that Cdn stock was 'foreign". Otherwise I'm sure you would not have been carrying these and paying all that foreign tax that you were not able to use up.

Are you sure that the foreign dividend 1116's were done correcty? Treaty rates on dividends are usually pretty low, usually 10%, which should be about what your effective tax rate in US should be. I would think that no matter how large or small your other US income would be, it would be tough to build up any dividend tax carry forward. I hope you have not been using the cap losses over the years as losses for the purpose of form 1116, as this would be incorrect, as I stated above, unless these were real estate or private company losses.