5

As is well known, if you are a US citizen but don't live (or even never have lived) in the US, investing is complicated. Most investment capital gains are taxed in both countries. Even worse, if you invest in a mutual fund where you live, the US taxes unrealized capital gains (even if you don't sell). So for example a US citizen living in Australia, who invests in an Australian mutual fund that goes up 20% must pay US taxes immediately on that unrealized 20% gain even though they haven't sold it. The person may even have to sell the investment to pay the US tax, triggering Australian taxes.

The question is are there any investments that can escape this unrealized capital gains tax? I believe if you buy a house that you live in, this would be an example, but is there any other asset US citizens can hold overseas without paying taxes on unrealized gains? What about precious metals or other physical assets?

WetlabStudent
  • 430
  • 5
  • 12

1 Answers1

8

The MTM taxation under Sec. 1291 on unrealized gains you're describing is specifically for PFICs.

Publication 8621 defines PFICs here.

So... don't hold PFICs. That means that yes, you'll probably want to avoid non-US mutual funds, ETFs, shares in holding companies or companies with significant passive income.

You would probably want to talk to a licensed tax adviser familiar with the US-Australian tax treaty and the Australian investment instruments to explain to you how they're taxed on the American side. Look for US expat tax advisers in Australia, I'm sure there are plenty.

littleadv
  • 190,863
  • 15
  • 314
  • 526