Question

U.S. Retiree Living in Brazil

Forum|Forum|1 year ago
June 25, 2024
1 reply
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I'm a retired U.S. citizen living in Brazil. My income is from passive income, namely dividends and capital gains on U.S. ETFs. I have to pay taxes in Brazil on those earnings. To my knowledge, there is no tax treaty between the U.S. and Brazil.

From what I understand, I may be able to get a foreign tax credit on my U.S. return for taxes paid in Brazil. What I'm unclear about is the ratio of foreign income to worldwide income. Since all of my income comes from U.S. ETFs of U.S. companies, is my foreign income considered to be 0, and thus the ratio of foreign to worldwide income 0, and finally resulting in a foreign tax credit of 0?

P

pk12_2

Employee

@gideontax , a general method of reducing the double taxation bite ( on passive income that is taxed by US and the other country ) is to resource the US sourced passive income ( interest, dividend etc. ) for purposes of form 1116 ( Foreign Tax Credit ). But this strategy works when the two countries involved have " double taxation " clause in a tax treaty between them. Since Brazil does not have a tax treaty with US, the only other-way is to take a deduction under the SALT ( State And Local Taxes ) category , limited to US$10,000. This would work if ,and only if, you can benefit from itemized deductions .

Is there more I can do for you ?

pk

G

gideontaxAuthor

That is very helpful. Thank you.

There is a hypothetical situation that I'm wondering about. I believe that Portugal has a tax treaty with the U.S. So if I lived there instead of in Brazil, would I be able to resource dividends and capital gains on my U.S. ETFs and (assuming I have no other income) and also get a 100% tax credit in the U.S. for the dividend and capital gains paid to Portugal using form 1116 (up to the applicable taxes in the U.S.)?

And then if I were to do a traditional to Roth IRA conversion, would I also be able to resource that to Portugal and get a 100% tax credit in the U.S. for taxes paid on the conversion in Portugal?

P

pk12_2

Employee

@gideontax in general resourcing of US income that is also taxed by a foreign taxing authority is possible for all countries that US has a tax treaty with. Obviously if you want to use Portugal as your home, then yes Portugal has a tax treaty with US.

Note that while US would recognize 100% of the taxes paid to a foreign taxing authority, the allowable amount for the current tax year is limited on form 1116 -- lower of what you have paid or the US tax liability allocated to this doubly taxed income..

On Roth or similar tax advantaged income , I have to go refresh my knowledge on US-Portugal Tax treaty for specifics, but in general if an amount is taxed by the Foreign Taxing Authority as " income", then it is eligible for Foreign Tax Credit treatment ( again depending on exact facts and circumstances ).

Is there more I can do for you?

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