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Old 04.12.2012, 19:42
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US capitial gains on Swiss asset

Let's say you acquired(inherited) property worth chf 500K. At the time of acquisition, the exchange rate was 1.8(or $277.7K). Years pass and the property is sold at cost for chf 500K. However, at the time of disposition, the exchange rate was 0.9(or $555.5K).

What would be the capital gains implications?
Would the cap gain be zero?
Would the cap gain be $277.7K
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Old 04.12.2012, 19:51
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Re: US capitial gains on Swiss asset

The basis is the fair market value on date of death.

The gain is the difference between basis and proceeds exchanged to USD using spot rate at acquisition and sale.

So if the property was worth 500k chf at date of death, convert that to USD using exchange rate on that day.

The proceeds are converted to USD at date of sale and the gain taxed at 15%
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Old 04.12.2012, 20:18
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Re: US capitial gains on Swiss asset

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The proceeds are converted to USD at date of sale and the gain taxed at 15%
Does it matter whether the proceeds are actually converted to USD?
- Lets say property sold for 500K CHF and the proceeds were held in CHF; not converted to USD. These proceeds are held for some length of time and ultimately converted to USD.
* At time of sale USD/CHF= 0.9
* At time of conversion USD/CHF= 1.2

Would a person then be allowed to 'write off' the dollar denominated loss they would incur as the USD/CHF appreciates?
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Old 04.12.2012, 20:44
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Re: US capitial gains on Swiss asset

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Does it matter whether the proceeds are actually converted to USD?
- Lets say property sold for 500K CHF and the proceeds were held in CHF; not converted to USD. These proceeds are held for some length of time and ultimately converted to USD.
* At time of sale USD/CHF= 0.9
* At time of conversion USD/CHF= 1.2
Would a person then be allowed to 'write off' the dollar denominated loss they would incur as the USD/CHF appreciates?
Well you realise the gain at the time of transaction, and is reportable in USD on your return, so no it does not matter.

You are alluding to foreign exchange rate gains and losses I believe. This is another important transaction that often occurs with sale of foreign property for US taxpayers. Any gain from exchange rate is considered ordinary income and is taxed. Losses are not allowed. Double kick in the teeth eh.

However, have you lived in the home? If you have lived in the home 2 out of the last 5 years you may be entitled to principal primary residence (PPR)exclusion of 250k. Has the property already been sold? If not, can you delay sale and look into whether you can make this your PPR to benefit from exclusion on gain?
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Old 04.12.2012, 21:20
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Re: US capitial gains on Swiss asset

Your right, the transactions details aren't really what i'm curious about. I am more interested in the exchange rate implications. From what you describe, the exchange rate treatment really sucks. Ordinary tax rates!!?

So an exchange rate gain of more than $250K will be taxed at an ordinary tax rate close to 40%, as opposed to a capital gain rate of 15%(soon to be 20%)

I trade forex futures. Under Section 1256 Contracts and Straddles I am permitted to split gains 60/40, LT/ST.

I guess simply holding onto to CHF constitutes currency trading and is viewed as a Section 988 transaction. That really sucks. Is there anyway to opt out of Section 988 like currency traders can?
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Old 05.12.2012, 00:07
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Re: US capitial gains on Swiss asset

As I understand, yes, you are taxed by the IRS on the artificial exchange rate gain, even though in another currency there is no gain. Look around at some of the wellknown sites for US taxation of persons abroad and indeed this has come up there and again as another form of discrimination of US persons living abroad, i.e. just living a normal life and owning a home. In addition to foreign pensions, etc., etc., owning non-US property can really screw you with taxes as the US tax code is made for the homeland and often intentionally/unintentionally double taxes or otherwise makes US persons abroad life sometimes not worth living.
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Old 05.12.2012, 00:44
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Re: US capitial gains on Swiss asset

From what I am reading all the gain is capital gains up to the date of sale? So any exchange gains are capital gains if incurred before the date of sale of the house? Any gains after that are taxed as exchange rate gains at normal tax rates?

How does that work JBZ? The money as been taxed and is now just savings in CHF. I guess my question is does that have any implications for our savings accounts just living here in Switzerland? Do we need to be aware of foreign exchange gains attributable to any of our money thats been taxed in CH and US as income? When we repatriate the money back to the US (like to pay the mortgage).
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Old 05.12.2012, 00:59
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Re: US capitial gains on Swiss asset

Tax on fx gain but cannot offset fx losses, this is surely absurd. This is the reason why people legally try to avoid paying tax as the rules are unfair.

My sympathy goes to all the US expats who have to take all the unfairness that the IRS throws at them and there's nothing they can do about it, unless they give up their citizenship.

On the other hand I really admire the French, they just don't take any crap that their government throws at them. Either they will protest/strike or leave the country and move to a better place like Geneva and avoid paying 75%.

We really need to have a sensible debate about tax. i wonder how the middle east survives with little or no tax! And it's not just because they have oil!

Last edited by justarandomguy02; 05.12.2012 at 01:02. Reason: Extra info added
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Old 05.12.2012, 06:10
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Re: US capitial gains on Swiss asset

BASIS for 'basis price' for US gain in property value?
If you buy a brand new property often you have so called additional or 'Mehrkosten'. For example you have a budget that's included in the contract price but often the equipping of the kitchen or that additional wall not in the original plan will often result in additionals. Does anyone know if including such 'additionals' to the contract price cause any problems in the event of an IRS audit??? When I bought my house 5 years ago, I had about CHF 45'000.- in such additionals so for me it is important that I can include this in the event that I one day sell, especially since there is the currency appreciation and the increase in property prices.
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Old 05.12.2012, 06:13
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Re: US capitial gains on Swiss asset

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On the other hand I really admire the French, they just don't take any crap that their government throws at them. Either they will protest/strike or leave the country and move to a better place like Geneva and avoid paying 75%.
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Old 05.12.2012, 23:23
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Re: US capitial gains on Swiss asset

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BASIS for 'basis price' for US gain in property value?
If you buy a brand new property often you have so called additional or 'Mehrkosten'. For example you have a budget that's included in the contract price but often the equipping of the kitchen or that additional wall not in the original plan will often result in additionals. Does anyone know if including such 'additionals' to the contract price cause any problems in the event of an IRS audit??? When I bought my house 5 years ago, I had about CHF 45'000.- in such additionals so for me it is important that I can include this in the event that I one day sell, especially since there is the currency appreciation and the increase in property prices.
I would be pretty sure you can include this in the base price.
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