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Mail Bag #9: Home Purchase, Donations, Personal Exemptions, Foreign Dividends, and U.K. retirement accounts

Mail Bag #9: Home Purchase, Donations, Personal Exemptions, Foreign Dividends, and U.K. retirement accounts
Ines Zemelman, EA
20-Sep-17

1. Personal Exemption

My wife is German and quit working last year. She is 60 and has no income. Can I deduct her from my taxes? And do you know if she will be eligible for Social Security at 62? I have done some research and it appears that she could?

You can claim a personal exemption for your NRA spouse provided he/she has no income from the US and cannot be claimed as a dependent on another taxpayer’s US tax return.

Personal Exemption

2. Donations

I am planning to make a donation to a US charity association.
How does it work to calculate tax deductions?
If I donate 1000 dollars for example, how much a tax deduction will I get? Is there a complicated calculation involved or is it predictable? In France it is very simple to predict: if I give 1000 than I get a deduction of 666 euros, independently of any other item of my taxes.

We have an article on charitable contributions that should be helpful..

Donations

3. Home Purchase

I have recently bought a property in Toronto, Canada with my sister (who is not american). I will be paying for all the ongoing costs and expenses including mortgage payments, interest, taxes, and expenses. i am wondering what types of deductions going forward will i have an what information i need to provide to amend my filing (purchased agreement signed Aug 9)

The key thing to note is that PURCHASING of a property does not create tax obligations. Selling of the home will be the main reporting mechanism.

If you rent the property, the income you receive will also be reported on your tax return going forward. Keep accurate records of all expenses/payments made You may be able to deduct mortgage interest on you r annual US tax return.

Home Purchase

 4. Foreign Dividends

I wanted to ask you about dividends from an investment (reinvested dividends to be specific) and taxes and how the dividends are taxed. Im thinking about buying stocks is a few companies that pay out cash dividends which i would reinvest. I know i would be taxed on them regardless but i was wondering how the US would tax them if the dividends are from an Australian Company and how it would work if the dividends were from an American company?

I had a look through the tax treaty between the US and Australia and what i gathered regarding to this was that the rate would not be more than 15% between the two countries? Perhaps i understood that wrong but i wanted to ask basically what the tax rate would be and how it would work to prevent double taxation.

Your understanding of the treaty was correct. Dividends from the Australian companies are considered "Qualified dividends" - i.e. they are taxes at the preferencial tax rate of 15%.If you paid any foreign taxes on your foreign investment income, it’s important to keep track of these taxes. The Foreign Tax Credit (FTC) may be used to minimize of US tax liability.

By taking advantage of the FTC, you may be able to completely eliminate your US tax liability on your foreign investment income. Of course, we would determine the best way to strategically optimize your return during tax preparation.

Foreign Dividends

 5. U.K. Retirement

I have a private pension with a retirement date of 17 Sept 2017. I intend to take this as a lifetime guaranteed income (with no lump sum involved, as I know this would be taxed by the IRS). I plan on using the entire Standard Life pension pot to buy a retirement income from another provider. I need to make some quick decisions and have been researching this to find out if transferring from one provider to another in this way would entail some sort of US tax liability. I haven't found any relevant information, nor have I been able to get through to the IRS helpline.

Your understanding of the treaty was correct. Dividends from U.K. companies are considered "Qualified dividends" - i.e. they are taxes at the preferencial tax rate of 15%.If you paid any foreign taxes on your foreign investment income, it’s important to keep track of these taxes. The Foreign Tax Credit (FTC) may be used to minimize of US tax liability.

By taking advantage of the FTC, you may be able to completely eliminate your US tax liability on your foreign investment income. Of course, we would determine the best way to strategically optimize your return during tax preparation.

U.K. Retirement

Ines Zemelman, EA
Ines Zemelman, EA
founder of Taxes for Expats
She may be reached at: