Friday, May 30, 2014

Careful this year with US foreign tax credits for Spanish short-term capital gains

This year Spain has changed the rules for how short term capital gains are taxed. Instead of being taxed at a fixed rate, they are now included as part of your general income, and taxed at your top marginal rate.

Depending on your marginal rate, this may trigger a “high-tax kickout” for your US foreign tax credits, which means that your short term capital gains/tax credits are no longer passive income, but have been magically transformed into general income.

The rule itself says: “Foreign source passive taxable income is removed from the passive income basket of a taxpayer if that income has been subject to an average effective tax rate above the top U.S. marginal rate applicable to that taxpayer”


Anonymous said...

I'll take it this is only for passive income generated in Spain, not the US, right?


santcugat said...

US passive income re-sourced as foreign income by treaty would end up in its own bucket for foreign tax credits, so I don't think you need to worry the kick-out.

Anonymous said...

I see, right now this is my situation.

Thanks for the clarification, keep up with this great blog!