Foreigners living in the US are sometimes classified as dual-status aliens. In a nutshell, that means that for part of the year you were considered a US resident for tax purposes, and part of the year you were considered a non-resident. For such individuals who have retained financial assets in their home country, FATCA (Foreign Account Tax Compliance Act) reporting becomes a concern. One reader asked if he should move his assets to the US to avoid FATCA reporting or should he simply leave them where they are. David McKeegan, co-founder of Greenback Expat Tax Services, has the best answer!
Hi everybody. My name is David McKeegan, I’m with Greenback Expat Tax Services. Our question this week is, if I’m a Dual-Status Alien and have investments back in my home country, should I move them to the United States to avoid the FATCA reporting requirements?
This is a tough question. If during the first of your residency you were a nonresident prior to obtaining permanent residency status, you may be classified as a Dual-Status Aliens for tax purposes. As a Dual-Status Alien you must file a separate return, and you cannot claim the standard deduction, and generally cannot claim dependency exceptions as well.
You are required to report your foreign bank account on the FBAR if your combined account balances exceeds the ten thousand dollar threshold at any point during the year. You will still be required to file FATCA as well, but the threshold for filing will be different, because you are now considered a US resident.
If you are considered a US resident, the threshold is $50,000 at any point during the year or $75,000 at the end of the year. Again, that’s the threshold for US residents, and this doubles for married people who are filing jointly.
To avoid filing FATCA you would need to move the money from your investments to the United States, but since FATCA isn’t a tax, it’s just a reporting requirement, and most people consider them nuisance, you may not want to sell your foreign investments and bring them to the United States. Selling those foreign investments could trigger a capital gain or a capital loss, and that is a taxable event. If you sell your foreign investments for a gain, and then move them to the United States in order to avoid the FATCA reporting requirement, you’re going to be creating a taxable event. You’re going to have to pay tax on the capital gain.
Really all you’re saving is not having to fill out an extra piece of paperwork, or having your accountant complete an extra piece of paperwork. You really need to consider whether the tax implication of selling your foreign investment is going to be worth saving you that extra reporting requirement. It probably won’t be if you have any sort of substantial assets held overseas.
That’s all for this week. If you have any other questions, please contact us. Thank you.
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