Selling RRSP at a Loss
Moderator: Mark T Serbinski CA CPA
Selling RRSP at a Loss
I moved to the US officially at the end of 2001. I had a real stinker of an RRSP I put $48K CDN and had a a market value of about $37.
I treated this account like a regular investment account for US tax purposes. I claimed income gained (minimal).
This year I sold all of the stocks / funds and I'm intending to report as though it was a regular investment account (capital gains worksheet).
If I report it as such then do I have to file an 8891 (if so, I don't understand why?). Am I breaking the law if I don't? It was my understanding when I moved that there would be no special tax treatment of the RRSP and I'd be responsible for any taxable events within it.
Any thoughts?
I treated this account like a regular investment account for US tax purposes. I claimed income gained (minimal).
This year I sold all of the stocks / funds and I'm intending to report as though it was a regular investment account (capital gains worksheet).
If I report it as such then do I have to file an 8891 (if so, I don't understand why?). Am I breaking the law if I don't? It was my understanding when I moved that there would be no special tax treatment of the RRSP and I'd be responsible for any taxable events within it.
Any thoughts?
Selling RRSP at a Loss - more info
Additional Info: I was a US citizen at birth, but lived in Canada until 2002. I worked in the US from 1999, and broke Canadian ties in Dec 2002 (I made a mistake in my previous posting (stating 2001)).
I have been filing US returns since 1998.
Also, I've filled out my tax return in H&R TaxCut and it doesn't have form 8891?
I have been filing US returns since 1998.
Also, I've filled out my tax return in H&R TaxCut and it doesn't have form 8891?
8891 serves TWO purposes:
1. It allows you to claim the treaty exemption from paying income tax on your RRSP when not withdrawing fund. This does not apply to you since (a) you prefer to report and (b) you are collapsing the RRSP.
2. The other CRUCIAL mechanism served by 8891 is for the reporting of a froeign trust. Failure to use 8891 subjects you to the rules for 3520 for which failure to report penalties are outrageiously high.
It is not complicated to submit an 8891 form a few weeks after you have e-filed, using 1040-X.
1. It allows you to claim the treaty exemption from paying income tax on your RRSP when not withdrawing fund. This does not apply to you since (a) you prefer to report and (b) you are collapsing the RRSP.
2. The other CRUCIAL mechanism served by 8891 is for the reporting of a froeign trust. Failure to use 8891 subjects you to the rules for 3520 for which failure to report penalties are outrageiously high.
It is not complicated to submit an 8891 form a few weeks after you have e-filed, using 1040-X.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Filling out 8891 without deferring income
Thanks for your input.
I'm a little confused when filling out the form with respect to 7b.
Form 8891 Data:
5. I'm both an Annuitant and Beneficiary?
6a. No
7a. $37,000 (converted to US)
7b. ? What goes here, $0, I was planning on breaking the capital gains (loss) on Schedule D / 1040 line 13.
8. $3000
9. $0
10. a,b,c,d $0
1040 - 16a $37,000
1040 - 16b $0
I'm assuming I cannot take a tax deduction for the $9000 (25% withholding) since I have no canadian income to apply it against nor is it a valid tax in the US.
Thanks
I'm a little confused when filling out the form with respect to 7b.
Form 8891 Data:
5. I'm both an Annuitant and Beneficiary?
6a. No
7a. $37,000 (converted to US)
7b. ? What goes here, $0, I was planning on breaking the capital gains (loss) on Schedule D / 1040 line 13.
8. $3000
9. $0
10. a,b,c,d $0
1040 - 16a $37,000
1040 - 16b $0
I'm assuming I cannot take a tax deduction for the $9000 (25% withholding) since I have no canadian income to apply it against nor is it a valid tax in the US.
Thanks
You most certainly can take the tax deduction on Schedule A. The deduction for foreign tax is NOT based on income that you report in US, it is based on the fact that it was legally charged tax bt a foreign gov't based in ITS own definition of income, not IRS's.
You are the beneficiary of the RRSP. Period. forget the annuitant language, it's meaningless in this forms context.
You can use the losses as capital losses, just like any other investment.
Your numbers for 7b is zero.
Your numbers for 10a/b/c/d/e are zero, since you are collapsing your RRSP, and will report these on the appropriate lines on 1040 anyways.
You are the beneficiary of the RRSP. Period. forget the annuitant language, it's meaningless in this forms context.
You can use the losses as capital losses, just like any other investment.
Your numbers for 7b is zero.
Your numbers for 10a/b/c/d/e are zero, since you are collapsing your RRSP, and will report these on the appropriate lines on 1040 anyways.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Big Mess - Selling RRSP at a loss, forgot to defer each year
I have a similar problem. I'm a US citizen with an RRSP (I moved back to the US in 2001).
I didn't realize until now, but my tax guy filed Rev Proc 89-45 for me in 1999, 2001, and 2002. I since have not filed anything to register or defer my RRSP. I'm thinking of filing form 8891 for 2004 and 2005 (with the defer option.).
I sold 95% of my RRSP portfolio in 2005 and overall had a $10K loss as well.
Since I had filed Rev Proc 89-45 and I'm going to defer for 2003, 2004, how do I record the transaction? How do I claim a loss and also "cash" out any intererest and dividends that are accumulated?
Lets say I had $60K total investment, with a current market value of $50K. I sold $46K worth (at a loss of about $10K). If my interest since 1999 was $400 and dividends of $120, do I record $520 as the "7b / 16b" taxable portion and then call out the losses on Schedule D?
Am I thinking about this the right way? If I can accurately estimate the taxable "events" that have occured over the past 7 years is there a factor that they need to be multiplied by?
I didn't realize until now, but my tax guy filed Rev Proc 89-45 for me in 1999, 2001, and 2002. I since have not filed anything to register or defer my RRSP. I'm thinking of filing form 8891 for 2004 and 2005 (with the defer option.).
I sold 95% of my RRSP portfolio in 2005 and overall had a $10K loss as well.
Since I had filed Rev Proc 89-45 and I'm going to defer for 2003, 2004, how do I record the transaction? How do I claim a loss and also "cash" out any intererest and dividends that are accumulated?
Lets say I had $60K total investment, with a current market value of $50K. I sold $46K worth (at a loss of about $10K). If my interest since 1999 was $400 and dividends of $120, do I record $520 as the "7b / 16b" taxable portion and then call out the losses on Schedule D?
Am I thinking about this the right way? If I can accurately estimate the taxable "events" that have occured over the past 7 years is there a factor that they need to be multiplied by?
Sounds about right. You owe tax on the interest that you defered so far, regardless of which deferral mechanism you used.
Rev Proc 89-45 WAS your deferral mechanism, so you have deferred for those years. If you didn't report income in the other years, your deferral is assumed to have continued.
I would not bother deferring with 8891 anymore since you have so little left in your RRSP, and you are withdrawing anyways. Just file without the election.
Just be sure that the amounts you exclude on 16b vs. 16a is no more than your book value when you arrived.
Rev Proc 89-45 WAS your deferral mechanism, so you have deferred for those years. If you didn't report income in the other years, your deferral is assumed to have continued.
I would not bother deferring with 8891 anymore since you have so little left in your RRSP, and you are withdrawing anyways. Just file without the election.
Just be sure that the amounts you exclude on 16b vs. 16a is no more than your book value when you arrived.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Just to clarify:
(eg. if i bought security X at $10,000 in 1999, and sold it for $8000 this year, with $400 in dividends (and cashed it all out), 16b would be $400 and 16a would be $8,400 and Schedule D would show $-2000.)?
I was always a US citizen so doesn't that mean it is based on the average (or adjusted) cost basis of each security?Just be sure that the amounts you exclude on 16b vs. 16a is no more than your book value when you arrived.
(eg. if i bought security X at $10,000 in 1999, and sold it for $8000 this year, with $400 in dividends (and cashed it all out), 16b would be $400 and 16a would be $8,400 and Schedule D would show $-2000.)?
Sorry, Since you were a US citizen, book value and cost basis mean nothing.
Your allowable excluded RRSP income is ONLY your contributions. Any growth, from day one, regardless of where you lived, in taxable in US
So, for you, the difference between 16a and 16b should be the total of your contributions to your RRSP (in USD(, since these were not deductible in US.
Your allowable excluded RRSP income is ONLY your contributions. Any growth, from day one, regardless of where you lived, in taxable in US
So, for you, the difference between 16a and 16b should be the total of your contributions to your RRSP (in USD(, since these were not deductible in US.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Thanks for all of your responses.
Because I was a US citizen, what does that mean from a capital loss standpoint?
If I contributed $70K, made $500 in "deferred-income" events (interest/dividends), but only have $50K in the account (due to loss in market value), then 16b would really be $-20K, but it can't be negative.
Am I still eligible to claim a capital loss on Schedule D, and do I put $0 in 16b or $500?
Because I was a US citizen, what does that mean from a capital loss standpoint?
If I contributed $70K, made $500 in "deferred-income" events (interest/dividends), but only have $50K in the account (due to loss in market value), then 16b would really be $-20K, but it can't be negative.
Am I still eligible to claim a capital loss on Schedule D, and do I put $0 in 16b or $500?
I don't want to get too bogged down in specifics, but 2 points;
a) your "deferred-income" events include not only interst and dividends, but also past capital gains that were deferred.
also, you can claim a final loss, when you collapse your RRSP completely, fora ny overall loss that you sustain, on schedule A, misc losses (subject to the 2% floor)
Because you did not fully collapse your RRSP yet, you can't use this yet, but you may simply want to hold on to these losses until then.
Altwernatively, you can report past gains on 16b, and track the cap losses from 2005 on sched D.
a) your "deferred-income" events include not only interst and dividends, but also past capital gains that were deferred.
also, you can claim a final loss, when you collapse your RRSP completely, fora ny overall loss that you sustain, on schedule A, misc losses (subject to the 2% floor)
Because you did not fully collapse your RRSP yet, you can't use this yet, but you may simply want to hold on to these losses until then.
Altwernatively, you can report past gains on 16b, and track the cap losses from 2005 on sched D.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best