Question regarding capital gains

[dingbat74]

Hi,

Here is my situation:

I am a canadian citizen but lived and worked worked in the U.S. from 2000-2007 and returned to canada in sept 2007. Prior to my return I was granted some stocks to my company which I did not sell until 2010. For the sake of this question let's assume that my original cost basis for the stock is $1 USD / share. On the day I moved back in 2007 the stock price was $1.50 and when I sold it in 2010 the sale price was $2.75. I'm assuming that I need to file a 1040NR but I'm not sure what to report. Please advise which option is the right one:

Option 1

in the 2010 U.S. 1040NR I should claim capital gain of $0.50 per share (i.e. $1.50 - $1.00) and in the Canadian tax filing report the capital gain of $1.25 per share (i.e. 2.75 -1.50)

option 2:
in the 2010 U.S. 1040NR I should claim capital gain of $1.75 per share (i.e. 2.75 -1.00) and in the canadian tax filing claim an foreign tax credit of $1.25 per share (i.e. 2.75 -1.50). (I'm assuming that I don't need to claim a capital gain in the canadian tax return and that I only ask for a tax credit that is equivalent to the portion of gain since I moved back to canada)

If neither of these are correct, please advise what I need to do. Thanks in advance for your help.


Matt