Hello all,
I have a question regarding deemed disposition and departure tax and then the actual sale of the asset in the same year. I looked through the forums but I couldn't find any answer.
Here is the situation: I left Canada on Oct 1, 2015. At that point I owned shares of stock worth about $30k USD. The broker for this account is Morgan Stanley since the company I worked for in Canada is US based. Anyway, I understand I will pay departure tax on those stocks. However, I sold them for real in November while in US.
For 2015 I will be filing 1040NR since I do not meet US residency requirements (no green card or substantial presence). How do I deal with this situation.
Do I report the actual sale of stock on 1040NR and ask for tax credit from US because Canada took it as departure tax? Do I have to file form 8833? Or do I pay tax on it in US in full and then ask for foreign tax credit in Canada to reduce/eliminate departure tax on this asset?
Please help me understand. Thank you!
puzon
Deemed disposition after Canada departure - please help!
Moderator: Mark T Serbinski CA CPA
This one is a bit tricky, since, while you are filing a 1040NR, you are not resident of Canada, so cannot exempt the cap gains.
You can however use the deemed disposition value as your new cost basis, by an IRS rev proc 2010-19.
Whatever gains leftover will be taxed at 30%, under the NEC tax table.
Do realize that you can always choose to file 1040 instead of 1040NR.
You can however use the deemed disposition value as your new cost basis, by an IRS rev proc 2010-19.
Whatever gains leftover will be taxed at 30%, under the NEC tax table.
Do realize that you can always choose to file 1040 instead of 1040NR.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
Thanks for your reply.
This would only be possible if I do form 8833 to state treaty position, right? This would allow me to have a new cost basis for the stock gain after deemed disposition.
Anyway, not sure how it would be possible to file 1040 if I do not have a green card and do not meet substantial presence test? Care to explain?
Thanks!
This would only be possible if I do form 8833 to state treaty position, right? This would allow me to have a new cost basis for the stock gain after deemed disposition.
Anyway, not sure how it would be possible to file 1040 if I do not have a green card and do not meet substantial presence test? Care to explain?
Thanks!
Yes, 8833 would be used, and you would file the statements required for the rev proc I mentions.
Cdns are afforded the right by treaty of always being able to file as a US citizen in the same circumstances as you. Really makes Pub 519 less important.
I don't disagree that you should file 1040NR in your situation, just that you may not have considered the plausible alternative.
For you, you even have a third way of filing, but I'll let you study that.
Cdns are afforded the right by treaty of always being able to file as a US citizen in the same circumstances as you. Really makes Pub 519 less important.
I don't disagree that you should file 1040NR in your situation, just that you may not have considered the plausible alternative.
For you, you even have a third way of filing, but I'll let you study that.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Hello and thank you for replying... again...
This makes things interesting and relates to the other question I posted which you already answered, thanks again! :)
I guess this now puts me in a situation where I would have to do two or three versions of tax returns for my family and see which gives us the most favorable net tax position. Of course, I would also have to make sure that I follow the rules and that later on there are no issue should anyone question the position taken.
Just out of curiosity... which treaty chapter are you referring to that allows Canadian citizen to file 1040 always regardless of green card or substantial presence test? And... does treaty always overwrite IRS/CRA rules?
Anyway, I might have to contact you on a more professional (paid) basis to help me with this situation. Thanks again for replying, you have been more than helpful!
This makes things interesting and relates to the other question I posted which you already answered, thanks again! :)
I guess this now puts me in a situation where I would have to do two or three versions of tax returns for my family and see which gives us the most favorable net tax position. Of course, I would also have to make sure that I follow the rules and that later on there are no issue should anyone question the position taken.
Just out of curiosity... which treaty chapter are you referring to that allows Canadian citizen to file 1040 always regardless of green card or substantial presence test? And... does treaty always overwrite IRS/CRA rules?
Anyway, I might have to contact you on a more professional (paid) basis to help me with this situation. Thanks again for replying, you have been more than helpful!
Hi,
I wanted to post a reply to this topic as I'm a bit confused with the NEC schedule. Simply put I do not know where to put the gains from the sale of my stock. One thing to note is that I have not been in the US for more than 183 days last year. Here is the excerpt:
Lines 16 Through 18—Capital Gains and Losses From Sales or Exchanges of Property Include these gains only if you were in the United States at least 183 days during 2015. They are not subject to U.S. tax if you were in the United States less than 183 days during the tax year.
Can anyone tell me where I need to report the sale of my stocks? Also, I will be using the cost basis from the date of my deemed disposition in Canada.
I wanted to post a reply to this topic as I'm a bit confused with the NEC schedule. Simply put I do not know where to put the gains from the sale of my stock. One thing to note is that I have not been in the US for more than 183 days last year. Here is the excerpt:
Lines 16 Through 18—Capital Gains and Losses From Sales or Exchanges of Property Include these gains only if you were in the United States at least 183 days during 2015. They are not subject to U.S. tax if you were in the United States less than 183 days during the tax year.
Can anyone tell me where I need to report the sale of my stocks? Also, I will be using the cost basis from the date of my deemed disposition in Canada.