Each week I answer dozens of questions from clients and prospective clients. Here's a sampling of a few I've received recently. Hope that you enjoy, and profit from the answers!
Moving to Australia Won't Shelter U.S. Citizen from Capital Gains Tax on U.S. Real Estate
Q. I am an Australian born dual national of the United States and Australia. My wife is also a dual national of the United States and [deleted]. We lived for 30 years in the United States but at the end of 2012, relocated permanently to Australia where I have taken up permanent employment. While in the United States, my wife and I filed joint tax returns. We will soon sell our U.S. primary residence that has made a substantial capital gain since its purchase in the 1990s. I am looking to optimize our capital gains obligations and set up a system of annual filing in the United States that will keep us in compliance with U.S. tax law and protect us from penalties etc.
A. One way to reduce state or federal capital gains tax on the sale of this apartment would be to do a 1031 exchange into another property, which would need to be located in the United States to qualify. Alternatively, if you have any loss carry-forwards, you may be able to use those losses to offset gains from the sale of the apartment.
Australia is a high-tax country. To avoid paying U.S. tax on income that Australia has already taxed, you can use the foreign tax credit to credit these payments against your U.S. tax obligations. This helps avoid double taxation. Another option would be the foreign earned income exclusion, but if you're living in a high tax country like Australia, the foreign tax credit usually results in a lower total tax burden.
In terms of ongoing compliance issues, these are discussed in some detail in my book The Lifeboat Strategy, which is available here.
If you have additional questions, feel free to inquire about a private consultation with me to discuss your personal situation and goals.
Restrictions on Some U.S. Social Security Payments to New Zealand
Q. I am a long-term resident of New Zealand and recently acquired New Zealand citizenship. Once I received my New Zealand passport, I gave up my U.S. citizenship and passport. I am 68 years old and have been collecting U.S. social security payments here in New Zealand for several years with benefits derived from the 30 years I worked in the United States. However, now that I've given up my U.S. citizenship, the Social Security payments have stopped. Apparently, this is a result of an ongoing dispute between the U.S. and New Zealand social security authorities. The upshot of it is that New Zealand citizens living permanently in New Zealand who don't also have a U.S. passport or green card can't receive U.S. social security benefits. I thought your readers considering expatriation in New Zealand might want to understand this consequence before they do so.
A. Thank you for sharing your experience. You are correct. U.S. law stipulates that citizens of any nation that treats U.S. citizens unfairly in terms of social insurance rights can only receive social security benefits if they live in the United States. This policy applies because the New Zealand government has refused to amend policies the U.S. Social Security Administration deems discriminatory against U.S. citizens.
Reporting Gold in a Safety Deposit Box
Q. I am a partner with an accounting firm in [deleted]. In completing IRS Form 8938, is there an obligation to report kilos of gold in a safe deposit box overseas? Page 4 of the current instructions dealing with "Interests in Specified Foreign Financial Assets" might cover gold in a safe deposit box but it is not one of the examples listed.
A. Form 8938, Statement of Specified Foreign Financial Assets, must be filed by any individual U.S. taxpayer who holds at least $50,000 (more in some cases) in certain financial assets outside the United States AND who generates enough gross income to be required to file a U.S. tax return. Official IRS guidance on this matter is posted here. Precious metals held "directly" need not be reported on Form 8938. Gold in a safety deposit box to which only your client has legal access might seem to be such an arrangement, but I haven't seen any official pronouncement from the IRS on this matter.
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Got a Question?
Don't hesitate to contact us, and we'll try to answer it in a future Q&A.
Mark Nestmann
www.Nestmann.com
