Hi,

I am a resident alien and would be filing a 1040 for 2008. During 2008 I made approx $800 Capital gain in US on my Employer Stock Options. I also have approx $5000 Capital Loss from Investments in India.

How much of the $5000 Capital Loss from India can I setoff for year 2008. Is it only $800 (to the extent of US Capital Gain) or can I go up to $3800 (after $800 setoff I will be left with $3000 net capital loss)? I know in US they allow you to setoff a maximum of $3K capital loss against other incomes like salary but is it applicable for foreign capital losses as well?

You can offset $3,800. If you have a foreign financial account with a balance of $10,000 or more at any time during the year, complete Form TD F 90-22.1.

You can offset $3,800. If you have a foreign financial account with a balance of $10,000 or more at any time during the year, complete Form TD F 90-22.1.

Hi,

I have been in argument with my colleague on how much I can setoff and he pointed me to Publication 514 from IRS which states that -


“You must adjust the amount of your foreign source capital gains to the extent that your foreign source capital gain exceeds the amount of your worldwide capital gain (the “US Capital loss adjustment”).
Your “foreign source capital gain” is the amount of your foreign source capital gains in excess of your foreign source capital losses. If your foreign source capital gains do not exceed your foreign source capital losses, you do not have a foreign source capital gain and you do not need to make the US capital loss adjustment.
Your worldwide capital gain is the amount of your worldwide (US and foreign) capital gains in excess of your worldwide (US and foreign) capital losses. If your worldwide capital losses equal or exceed your worldwide capital gains, your worldwide capital gain is ZERO.”

So does this mean I cannot get the benefit of $3000 capital loss adjustment on foreign capital losses?

Regards

Ravishankar.B

The discussion in Publication 514 is dealing with the amount of foreign source income for purposes of calculating the foreign tax credit limitation. The adjustments being discussed do not change your taxable income. They only change the calculations to determine how much in foreign tax credits are allowed.