Foreign tax credit AND Dividends for US Tax exempt bond funds

[Vikinglll 0]

Hello,

I have a question. I understand Foreign tax credit is for prevent taxation on the same "taxable" income twice (i.e. taking FTC for tax paid on dividends in Germany for example). For that purpose, US sourced dividends are re-sourced as German source passive income.

 

What happens when someone has US tax exempt bond funds, and they are taxed at 25% in Germany. Is it that since these dividends would not have been taxed in USA, there is obviously no credit (but what would happen if it is resource to Germany as German source income?)

OR

The FTC is still counted as tax paid by US citizen in a foreign state and is used to offset other taxes.

 

If someone has encountered this or knows publication dealing with this, can you please let me know,

 

Thanks

[applepenpineapple 70]

Basic information is available on

• publication 514 and 54,
• form 1116 instructions,
• and the US-Germany treaty, which is partially amended by the 2006 protocol. You have to look at which articles of the original treaty has changed, and look at the corresponding part of the protocol for the current rules.
• If you claim FEIE, then form 2555 instructions.

 

Codes: Sourcing

https://www.law.cornell.edu/uscode/text/26/subtitle-A/chapter-1/subchapter-N/part-I

Codes: foreign tax credits

https://www.law.cornell.edu/uscode/text/26/subtitle-A/chapter-1/subchapter-N/part-III/subpart-A

Codes: FEIE

https://www.law.cornell.edu/uscode/text/26/subtitle-A/chapter-1/subchapter-N/part-III/subpart-B

 

Regulations: you need to find the matching regulations for the code sections

https://www.law.cornell.edu/cfr/text/26/part-1

 

Treaty:

https://www.irs.gov/businesses/international-businesses/germany-tax-treaty-documents

 

I'm not a professional, so these are only my opinions, you'll need to consult a licensed accountant.

 

The main things are (in the order of form 1116):

• sourcing,
• adjustments to long term capital gains and qualified dividends,
• US capital loss adjustment,
• allocation of deductions,
• allocation and currency conversion of foreign taxes,
• applying carryover and carryback,
• adjustment to credit for any foreign or domestic or separate category loss account or recapture,
• computation of excess foreign tax to be carried over

 

US sourced dividends (dividends from US companies) do not get re-sourced. They get taxed in both countries, and you claim credits from Germany against the US taxes (up to 25% limit).  You have to calculate the pro rata portion of the US taxes allocated to the US dividends.  I was told by an accountant to divide the dividends by AGI to get the pro rata ratio.  I was wondering if allocating by the QD-LTCG tax worksheet amounts would be acceptable if that results in a higher amount of credits (pro rata by 0%, 15%, and ordinary brackets), but I'm not sure. But claiming credits from Germany is much easier than US FTC, because the German tax return only has 1 single line to fill in to make the claim.

 

There may be an exception for income from US immovable property (including natural resources) if they are derived from or from the alienation of such property (more likely royalties; maybe but not sure about dividends since it's difficult to tell what the dividends were derived from), which are exempt from German taxes by treaty, and don't go into 1116.  But exempt income still goes into Progressionsvorbehalt to increase your German taxes on ordinary income.  However, gains from sales of stocks in US companies that derive most of their income from US immovable property are still taxed by Germany, but you can claim credit from Germany for US taxes paid on it.

 

I'm not sure if there exists US dividends that are exempt from US taxes. Are they not tax exempt interest?

 

If they're US interest that are exempt from US taxes, then I would imagine that you still have to pay tax in Germany. And no FTC credits for the foreign taxes paid on it, since I think the exempt US interest doesn't show up as taxable income on 1040, so wouldn't be included on 1116. And if that income isn't in 1116, then the foreign taxes on it don't go in there either.  But I'm not sure.

 

US sourced interest (from US banks, bonds, etc), get re-sourced by treaty.  They get taxed in both countries, and you claim FTC from US.

 

Sourcing of capital gains from stock/funds depends on which country you are resident of. If you are resident in Germany, the gains are foreign sourced. You don't need to re-source. They go directly in passive category.  But if they are exempt from German taxes, like if the shares/funds were purchased before 2009, then capital gains from stocks in US company would be US sourced even if you are resident in Germany, because there is a rule that capital gains from stocks in US companies that aren't taxed by the foreign country of residence of at least 10%,  are then not foreign sourced. But then you may be able to re-source by treaty instead for these gains, but goes into the re-source category instead of the passive category.

 

Income from a US retirement account may be exempt from German taxes, but I'm not sure. There is a section in the treaty about it.

 

The adjustment to qualified dividends and long term capital gains is important. Depending on whether your foreign sourced income contains more of either ordinary income or QD+LTCG, the adjustment could be good or bad for the maximum FTC credits.  There is an adjustment exception if your QD+LTCG is under $20,000, but typically it's better to make the adjustment to get more credits (when a large part of your income is from US sourced qualified dividends), unless most of the foreign sourced income is QD+LTCG and your US sourced income is ordinary. This is because the adjustment recomputes the allocation of US taxes to 37% on ordinary income and 15% on QD+LTCG, so less is allocated to QD+LTCG.

 

Allocation of standard/itemized deductions is more complicated for capital gains, because allocation is to gross income, which includes capital gains before losses, but not capital losses.  So let's say you have $1 million of capital gain, but $999,999 of capital loss, and most of your other income is insignificant in comparison. Then that net of $1 dollar gets allocated almost all of your $12,000 standard deduction. $1 - $12,000 = -$11,999 and now you have a negative amount which causes problems, such as foreign loss account or separate category loss account (or a domestic loss account if that was a US sourced capital gain).  Also complicated is how the QD+LTCG adjustment for US loss adjustment affects the allocation of deductions.

 

Most software and third party sources calculate the adjustment incorrectly (extremely wrong). They leave out the portion of QD+LTCG that fall into the capital gain excess (the portion covered by standard/itemized deductions) resulting in significantly reduced credits.  Even the IRS instructions/publications leave out instructions about how to deal with capital gain excess and LTCG that have a 0% rate, so you have to factor that in too.

 

Capital gain excess is included in gross income, but is not in taxable income (because it's the portion offset by deductions), since gross income is income before deductions, while taxable income is gross income after deductions.  So my theory is that capital gain excess does not need a QD+LTCG adjustment since it's not taxable income and does not have a capital gains rate differential, but needs to be included in gross income (line 1a of 1116), but does have to be factored into the US loss adjustment (worksheet B ).

 

To do the adjustment, it's better to take a modified version of the B worksheet from the 1116 instructions.  B worksheet is simplified because it only includes 2 columns (short term and 15% long term rate).  But typically you'll also have 0% long term rate and also a capital gain excess group for each of short term and long term.  So I modify B worksheet and add 3 additional columns. The line instructions for the 3 new columns will be different for the original 2 columns, depending on whether they are ST or LT, and a gain or a loss.  The reason for the complexity is because of how ST losses can offset LT gains and vice versa, and then in combination with either US or foreign gains or losses. So the worksheet tries to work through each possible combination. Also it tries to work out how US losses have to be allocated pro rata between different separate categories of income (e.g. passive category and resourced category).

 

Also, if you exceed the AMT tax exemption threshold, you need to an AMT version of 1116 and also it's own AMT carryover credit account. Even if the form instructs you to stop and not to continue with form 6251 when you aren't actually subject to AMT (due to being covered by the AMT version of capital gain excess), you should still complete the form so that you can have a record of AMT carryover into the future in case you ever need it in the next 10 years. Even if the instructions tell you not to attach the AMT forms, it might be a good idea to attach it anyway.

 

The income that you're allowed to claim German credits against US taxes, I would guess you could also claim against state taxes, but I'm not sure.

 

Also, be careful that losses incurred from before become German tax resident cannot be carried over for German tax purposes. This also includes wash sale losses disallowed from before that haven't yet been recaptured.  So the income on your US and German tax returns may be completely different.

 

Also, Germany doesn't have wash sale rules. So your US tax return may show a very high income due to having lots of wash sales, but the German tax return may be very low.  The broker 1099 may have compounded wash sale losses from consecutive buying/selling, and the cost basis doesn't say what portion is from previous wash sale losses.  You either need to manually calculate the real gain for German purposes, or sometimes the broker website has an option to print out your realized gains without wash sale losses factored in.

 

Also if you're self employed, you may need to file form 8858.

You'll also need to consider FBAR. It's probably better to file anyway to be safe, even if you're below $10,000.

[applepenpineapple 70]

I'm not a professional, so these are only my opinions, you'll need to consult a licensed accountant.

 

If you want to be able to claim more FTC on dividends, you could buy foreign stocks that pay dividends, instead of buying US stocks that pay US dividends. But most countries of the foreign stocks charge 15% withholding on dividends, and some charge 25%, which you then claim as credit against both the German and US taxes.  However, if you buy UK stocks, there is no UK withholding tax.  So then you can put the UK dividends into the passive category for FTC.  Usually the stocks would be ADR shares, and have an ADR fee taken out of the dividend payments.

 

You could also buy foreign bonds, in foreign companies, for example several cruise companies are registered in Central America.  The interest payments are foreign sourced and go into the passive category.  There is no withholding tax on foreign interest. However, interest is taxed at ordinary rates while qualified dividends are taxed at 0% and 15%.

 

After you leave Germany and cease paying foreign taxes, but have accumulated a lot of unused foreign taxes for carryover FTC into the future since Germany has much higher tax rates than the US, my theory is that you can still claim FTC on the UK dividends and foreign interest income even if you pay 0% foreign taxes on them, since they are foreign sourced.  You apply the carryover FTC to them, and that would be away to use up your carryover credits (in the passive category) before they expire in 10 years.

 

Gains and dividends from US ETF stocks (that are in equity stocks) have a 30% discount on German taxes (there are different rules on different types of ETFs).  They go into Anlage KAP-INV instead of KAP. So instead of paying 25% tax, it would be 17.5%. They way it shows up on the tax calculation is that the income amounts on KAP-INV gets reduced to 70% and the multiplied by the 25% tax rate. But losses from regular stocks can't offset gains from ETF for German taxes.  I'm not sure about whether losses from ETF could offset from other types of income.  Entering example cases into Elster-Online might give an answer.  For ETFs, you need to pay  German tax on a theoretical minimum dividend distribution starting from the year after you purchase the ETF, but that minimum dividend percentage (which is very small) is usually exceeded by the real dividend distribution. Only when the ETF doesn't pay at least the minimum distribution, do you have to pay German tax on a fictitious amount of dividend, which you then reclaim back as a cost basis adjustment when you sell the ETF shares. The calculations are made in Anlage KAP-INV.

 

When you claim foreign tax credits from Germany (like for US taxes on US dividends), when you allocate the German taxes to each amount of income for preparation for entry into part II of 1116, I think it's better to add the credits as a fictitious amount to your real German taxes, prorate that higher amount to each amount of income, and then reduce that amount for the income that had the credits by that amount of credit. This is because the credit affects the 5.5% solidary tax on the 25% capital gains tax and also later if for some reason Germany denies your credit against US taxes, then that would only affects the US sourced income that isn't included in 1116, and avoids a foreign tax redetermination that requires a lot of extra work to amend later.

 

This is assuming the stocks are with a US broker.  If you have a foreign broker, you may need to report the value of your accounts annually with a specific form, and also with FBAR.

 

 

 

Also, depending on what type and amount of income you have, it may be better or worse to claim FEIE on your earned income compared to claiming FTC (or as itemized deductions). But once you start your election to claim FEIE, you have to do it forever and cannot claim FTC on your earned income, unless you revoke your election, which you have to request permission from the IRS and then I think you're locked into a fixed number of years before you can start claiming FEIE again.

 

I don't know how to tell when claiming FTC (or as itemized deductions) is better than claiming FEIE. Maybe if you are going to move to another country with a low income tax (lower than the US) after being heavily taxed in Germany, the accumulated unused credits carried over from the German taxes could be applied to the income in the second country. But it depends on whether the income you earn in Germany and the second following country are both in the same income category (for example the foreign branch category for self employment). But if you are employed, then I think that goes into the general category instead.

 

Or if most of your foreign sourced income is QD+LTCG while your US sourced income is ordinary, since the QD+LTCG adjustment recomputes US taxes as 37% on ordinary income and 15% on QD+LTCG, then claiming FTC on foreign earned income which would be recomputed at 37% tax rate would help to increase the amount of FTC that you can apply.

 

You would have to calculate it both ways to find out which way is better for you.

 

I don't know when claiming itemized deduction instead of credits is better.

 

But typically I think claiming FEIE is better.  Because, the FEIE amount is included in gross income for the allocation of deductions in part I of 1116, but is not part of taxable income. So FEIE reduces the allocation of deductions to your other types of foreign taxable income in part 1 of 1116, and increases the amount of credits you can apply. But if your earned income exceeds the FEIE limitation, then the remainder would go into FTC.

 

FEIE is also easier than FTC on earned income for paperwork.

 

The FEIE limitation is against gross earned income before expenses, but after cost of goods sold.

 

Also, some tax preparation software calculates the FEIE tax worksheet completely wrong and do not factor in the capital gains excess, so you should fill out the worksheets manually by hand to double check.

[Straightpoop 703]

@applepenpineapple

 

Well done, Grasshopper.

 

I see a second career for you beckoning.

 

 

[applepenpineapple 70]

I'm not a professional, so these are only my opinions, you'll need to consult a licensed accountant.

 

One thing I'm still not sure about, but theorize that could completely wipe out German taxes in the year of ceasing being a German tax resident, is whether capital losses realized after moving away from Germany but before the end of the year can offset all types of income.

 

All income, both profits and losses (but not sure if income from retirement account is excluded), after moving away go into Anlage WA-ESt, and gets applied as progressionsvorbehalt to affect the tax on ordinary income. So suppose there are huge unrealized capital losses from stocks from this year. If they are realized before moving away, then the losses can only offset other realized capital gains from stocks. But if the unrealized losses exceed the realized gains, then waiting and selling the excess portion after moving away could then reduce ordinary income as a negative progressionsvorbehalt .

 

And then if the losses are close to the total amount of all other income, then checking the box for Günstigerprüfung in Anlage KAP would treat all capital income as ordinary income, then the losses in WA-ESt may offset everything.

 

The other thing I'm not sure about is whether a part year resident would get the full amount of the Grundfreibetrag of 10908€, or if it's prorated by the length of residency during the year, which would affect the negative progressionsvorbehalt calculation.

 

At least when entering values in such a case into Elster Online gives such a result with the full Grundfreibetrag.

 

 

If both ordinary income and capital income are very small,  the box for Günstigerprüfung in Anlage KAP can be checked to see if Elster Online gives a lower tax result.

[Straightpoop 703]

15 minutes ago, applepenpineapple said:

But if the unrealized losses exceed the realized gains, then waiting and selling the excess portion after moving away could then reduce ordinary income as a negative progressionsvorbehalt .

 

Nah.  Won't work.  It's been decided. 

 

See:   BFH Urteil v. 01.06.2022 - I R 3/18

 

No application of PV to use foreign (non-taxable) investment income to boost ordinary income tax rates.  The corollary:  no application of negative PV to use foreign investment losses to reduce ordinary income tax rates.

 

[PandaMunich 16,915]

2 hours ago, applepenpineapple said:

checking the box for Günstigerprüfung in Anlage KAP would treat all capital income as ordinary income, then the losses in WA-ESt may offset everything.

"Einkünfte aus Kapitalvermögen" is a separate category and losses in that category can never reach outside and lower the income from another income category.

Losses you have in the category "Einkünfte aus Kapitalvermögen" get carried forward to the next year, which isn't of much use to you if you have moved away.

 

See §20 (6) EStG: https://dejure.org/gesetze/EStG/20.html

• (6)
  1Losses from capital assets may not be offset against income from other types of income; they may also not be deducted in accordance with section 10d.
  
  2The losses shall, however, reduce the income which the taxpayer earns from capital assets in subsequent assessment periods.
  
  3§ 10d, paragraph 4 shall apply mutatis mutandis; in the case of married couples assessed jointly, joint loss offset shall take place before the loss is determined.
  
  4 Losses from capital assets within the meaning of paragraph 2, sentence 1, number 1, sentence 1, arising from the disposal of shares may only be offset against gains from capital assets within the meaning of paragraph 2, sentence 1, number 1, sentence 1, arising from the disposal of shares; sentences 2 and 3 apply mutatis mutandis.
  
  5 Losses from capital assets within the meaning of paragraph 2, sentence 1, number 3 may only be offset against gains within the meaning of paragraph 2, sentence 1, number 3 and against income within the meaning of section 20, paragraph 1, number 11 up to an amount of EUR 20,000; sentences 2 and 3 apply mutatis mutandis with the proviso that losses not offset may only be offset against gains within the meaning of paragraph 2, sentence 1, number 3 and against income within the meaning of section 20, paragraph 1, number 11 up to an amount of EUR 20,000 per subsequent year.
  
  6 Losses from capital assets arising from the total or partial uncollectibility of a capital claim, from the derecognition of worthless assets within the meaning of paragraph 1, from the transfer of worthless assets within the meaning of paragraph 1 to a third party or from any other loss of assets within the meaning of paragraph 1 may only be offset against income from capital assets up to an amount of 20,000 Euros; sentences 2 and 3 apply mutatis mutandis with the proviso that losses not offset may only be offset against income from capital assets up to an amount of 20,000 Euros per subsequent year.
  
  7 Losses from capital assets that are subject to capital gains tax may only be offset or reduce the income that the taxpayer earns from capital assets in subsequent assessment periods if a certificate within the meaning of section 43a, paragraph 3, sentence 4 is available.

 

--> if the loss itself itself cannot affect other income types, then Progressionsvorbehalt because of that loss cannot affect other income types either.

It really is a separate "pot" and nothing loss-related can ever climb out of that "pot".

 

***************************************************************************************************************

 

It's the same reasoning for Progressionsvorbehalt because of losses from third countries (= non EU/EEA countries): https://www.haufe.de/personal/haufe-personal-office-platin/frotschergeurts-estg-2a-negative-einkuenfte-mit-bezug-2232-rechtsfolgen-fuer-den-progressionsvorbehalt_idesk_PI42323_HI2121276.html

Since these 3rd country losses are not allowed to be offset against other types of income (this is laid down in §2a EStG), neither can - in the case that this 3rd country loss is not actually taxable by Germany, e.g. in the case on non-EU rental income for countries that have a double taxation agreement with Germany - their Progressionsvorbehalt become negative.

Any such non-EU rental loss (for example: US rental loss), would be carried forward to the next year and would lower the non-EU rental income from that country (US rental profit) that will be subject to Progressionsvorbehalt in that next year.

 

I believe the US has a similar rule with regards to "passive" income.

[applepenpineapple 70]

2 hours ago, Straightpoop said:

 

Nah.  Won't work.  It's been decided. 

 

See:   BFH Urteil v. 01.06.2022 - I R 3/18

 

No application of PV to use foreign (non-taxable) investment income to boost ordinary income tax rates.  The corollary:  no application of negative PV to use foreign investment losses to reduce ordinary income tax rates.

 

2 hours ago, PandaMunich said:

"Einkünfte aus Kapitalvermögen" is a separate category and losses in that category can never reach outside and lower the income from another income category.

Losses you have in the category "Einkünfte aus Kapitalvermögen" get carried forward to the next year, which isn't of much use to you if you have moved away.

 

 

Box for Günstigerprüfung Not Checked

1) Then neither gains nor losses from Kapitalvermögen made after moving away from Germany should not be included in WA-ESt?

 

 

I see something about Günstigerprüfung and progressionsvorbehalt in blogs about 7.12.2016 (Az. 11 K 2115/15 E).

 

Box for Günstigerprüfung Checked

2a) Then gains from Kapitalvermögen made after moving away from Germany should be included in WA-ESt, but not if it was a loss?

2b) But only if it results in a cheaper tax?

 

3a) If there is a mix of gains from interest/dividends and a net loss from stocks made after moving away from Germany, then only the interest/dividends are entered into WA-ESt, but not the net loss from stocks?

3b) The loss is not reported anywhere on the German tax return?

 

4) What if there was a net gain from stocks before moving, and net loss from stocks after moving, and the box is checked?

 

 

Grundfreibetrag

5) Do part year residents apply the full amount or is it prorated?

 

 

Carry forward

6) The loss realized after moving away from Germany cannot be carried forward, so it's better to realize the loss before moving away, for a future chance of returning to Germany (but may not be good for US FTC overall foreign/separate category loss account, unless turning it into a temporary wash sale before moving, and permanently selling after moving)?

 

[applepenpineapple 70]

4 hours ago, PandaMunich said:

I believe the US has a similar rule with regards to "passive" income.

 

From what I understand, US rules have some significant differences.  Passive income can be either capital gain or ordinary income, and capital gain can be taxed at capital gains rates or ordinary tax rates. The distinction varies by the type of income or property, and duration of holding.

• Losses from stocks can reduce other capital gains from sale/disposal of property (e.g. bonds, royalties, equipment), but depends on whether the stocks or properties are held shorter or longer than 1 year.
• Any remaining long term loss reduces short term gain, and short term loss reduces long term gain.
• Any remaining long term gain is taxed at capital gains rates, and any remaining short term gain is taxed at ordinary rates.
• The remaining losses after the previous steps can reduce ordinary income (e.g. wages, self-employment, interest, dividends) by up $3,000, then the rest is carried forward.

One complexity with US rules on selling bonds is that the profits are divided between ordinary income and capital gains, depending on the the ratio of the holding period to the length of time between the purchase date and the maturity date. Then the capital gains are taxed at either capital gains rates or ordinary tax rates depending on whether the holding period is longer or shorter than 1 year.

 

 

This is much different from DE rules, where losses from stocks can only reduce gains from stocks, and passive income (e.g. stocks, bonds, interest, dividends) are taxed at capital gains rates.  And DE rules are much simpler with a flat tax rate.

 

I only realized now is that DE rules have the losses from sales of bonds grouped together with interest and dividends. I have unrealized losses from bonds which I held onto, which could have completely reduced my taxes on interest and dividends to zero last year if I had sold them instead.

 

 

Ok, thinking about it again, I don't need Günstigerprüfung this year, and then it won't have any effect on WA-ESt, because I can reduce all of my Kapitalvermögen to zero, including interest and dividends, by losses from bonds.

 

The only issue is whether I get the full Grundfreibetrag to reduce my self-employment income, due to part year resident.

[Straightpoop 703]

2 hours ago, applepenpineapple said:

1) Then neither gains nor losses from Kapitalvermögen made after moving away from Germany should not be included in WA-ESt?

 

 

I see something about Günstigerprüfung and progressionsvorbehalt in blogs about 7.12.2016 (Az. 11 K 2115/15 E).

 

Box for Günstigerprüfung Checked

2a) Then gains from Kapitalvermögen made after moving away from Germany should be included in WA-ESt, but not if it was a loss?

2b) But only if it results in a cheaper tax?

 

3a) If there is a mix of gains from interest/dividends and a net loss from stocks made after moving away from Germany, then only the interest/dividends are entered into WA-ESt, but not the net loss from stocks?

3b) The loss is not reported anywhere on the German tax return?

 

Income/loss and other items subject to Abgeltungsteuer that take place after termination or before acquiring German tax residence will be tax non-events in Germany and hence, non-reportable on the WA-ESt.

 

That was the upshot of the BFH decision cited.

 

 

[Straightpoop 703]

2 hours ago, applepenpineapple said:

4) What if there was a net gain from stocks before moving, and net loss from stocks after moving, and the box is checked?

 

 

The gains will be reported and taxed (Abgeltungsteuer or günstiger regular tax). The loss after moving will not be reported because it is a tax non-event in Germany.

[PandaMunich 16,915]

29 minutes ago, applepenpineapple said:

The only issue is whether I get the full Grundfreibetrag to reduce my self-employment income, due to part year resident.

Yes, you get the full Grundfreibetrag.

[argleboo 0]

I searched Toytown and only found one reference to IRS form 8858, with @applepenpineapple writing

"Also if you're self employed, you may need to file form 8858."

so I figured I'd revive this thread to ask — 

Is this required for self-employed overseas Americans? I don't think I've ever filed it, in many years of living in Germany. I already did my 2022 tax return, but should I file this going forward?

[Nixon 2]

@PandaMunich

"
It's the same reasoning for Progressionsvorbehalt because of losses from third countries (= non EU/EEA countries): https://www.haufe.de/personal/haufe-personal-office-platin/frotschergeurts-estg-2a-negative-einkuenfte-mit-bezug-2232-rechtsfolgen-fuer-den-progressionsvorbehalt_idesk_PI42323_HI2121276.html

Since these 3rd country losses are not allowed to be offset against other types of income (this is laid down in §2a EStG), neither can - in the case that this 3rd country loss is not actually taxable by Germany, e.g. in the case on non-EU rental income for countries that have a double taxation agreement with Germany - their Progressionsvorbehalt become negative.

Any such non-EU rental loss (for example: US rental loss), would be carried forward to the next year and would lower the non-EU rental income from that country (US rental profit) that will be subject to Progressionsvorbehalt in that next year.



I believe the US has a similar rule with regards to "passive" income."

I got here by searching for 2a EStG.

In general, what I need to do with +amount in the Zeile 5?
It is a rental we have, it sounds like there is a loss Finanzamt recognized but it is not offsetting any income taxed by Germany. It can be carried over to the next year, but what is that good for if it is not lowering taxable revenue?
Zeile 9 says: Am 31.12.2021 verbleibende negative Einkuenfte = 1483.

They already sendt me value for 2022, a bit higher than for 2021 even though I still didn't file German taxes for 2022.

Thanks.

[PandaMunich 16,915]

>I got here by searching for 2a EStG.
Zeile 9 says: Am 31.12.2021 verbleibende negative Einkuenfte = 1483.
You are lucky I recognised what you are referring to from these few details.
In the future, please always state the name of the document from which you cite the line (= Zeile).

In your case, this was a "Bescheid über die gesonderten Feststellungen nach § 2a EStG zum Schluss des Veranlagungszeitraums 2021":

[PandaMunich 16,915]

>In general, what I need to do with +amount in the Zeile 5?

It is a rental we have, it sounds like there is a loss Finanzamt recognized but it is not offsetting any income taxed by Germany. It can be carried over to the next year, but what is that good for if it is not lowering taxable revenue?
You don't do anything with it, the amount from line 5 is the one that you had declared in your 2021 tax return as being your loss from your non-EU rental.
The Finanzamt is now simply confirming that they have accepted this loss.

In my above example, the amount in line 3 shows a US rental loss that that person had up to 31.12.2020 of 636€, then the loss from that US rental from 2021 of 4,395€ gets added and the result is the total loss at the end of 2021 of 5,031€ (= 636€ + 4,395€) for that US rental, which gets carried forward to 2022.

The thing it is good for, is lowering your US rental profit in 2022 (or if there is none, the one in 2023 or 2024 and so on), since that US rental profit is subject to Progressionsvorbehalt, i.e. it does not get taxed again by by Germany (the US have the taxation rights on it), but it does raise your German income tax rate.
By getting your 2022 US rental profit lowered by the carried forward accumulated US rental loss form all earlier years, you will have less progression income in 2022 and your German income tax rate will not be raised by that much, i.e. you save German income tax in 2022. 
If you do not know what Progressionsvorbehalt is, and for an example with numbers of its effect, please scroll down to the section "Progressionsvorbehalt" in here.

>They already sendt me value for 2022, a bit higher than for 2021 even though I still didn't file German taxes for 2022.
Ok, this is worrying.

The estimated Feststellungsbescheid 2022 is not the problem (though if your real 2022 loss is higher than the one they estimated, it will also be a problem, but a smaller one, since only progression income is affected by it).
The problem is that if you did not provide your 2022 non-EU rental loss value to the Finanzamt in your 2022 income tax return, this means that the Finanzamt has estimated your 2022 income tax burden and will have also issued this Schätz-Bescheid 2022 for income tax, i.e. a Bescheid with estimated income tax values, since "schätzen" means "to estimate".

And the Finanzamt always estimates high, i.e. the tax burden in that Schätz-Bescheid will be more than you really owe in tax for 2022, and if you do not do an Einspruch against it that arrives at the Finanzamt within 1 month and 3 days of the date that Schätz-Bescheid was issued, the high amounts on it become set in stone.
they become set in stone even if - as you still have the duty to - you file your 2022 tax return with the real, lower amounts.
This is why a Schätz-Bescheid is dangerous.

They only do a Schätz-Bescheid if you are late in filing, either because they had chosen you to file before the normal deadline and you then did not file, or because you do your tax return on your own, i.e. no Lohnsteuerhilfeverein or Steuerberater is on record as representing you, in which case the 2022 income tax return was due: https://www-handelsblatt-com.translate.goog/finanzen/steuern-recht/steuern/steuer-was-passiert-wenn-sie-die-abgabefrist-verpassen/24255648.html?_x_tr_sl=de&_x_tr_tl=en&_x_tr_hl=en-US&_x_tr_pto=wapp&_x_tr_hist=true

--> you immediately need to send your Finanzamt an Einspruch, by e-mail will do (google the name of your Finanzamt and e-mail to find out their e-mail address) in which you write. And then you have to file the 2022 tax return as soon as possible:

***********************************************************

subject: Einspruch gegen Einkommensteuer-Bescheid 2022 und gegen den Bescheid über die gesonderten Feststellungen nach § 2a EStG zum 31.12.2022
Steuernummer: insert your Steuernummer here

Sehr geehrte Damen und Herren,

hiermit erheben wir Einspruch gegen den durch Sie geschätzten Einkommensteuer-Bescheid 2022 und gegen den durch Sie geschätzten Bescheid über die gesonderten Feststellungen nach § 2a EStG zum 31.12.2022.
Die Einkommensteuererklärung 2022 wird so bald wie möglich nachgereicht.

Mit freundlichen Grüßen
Richard Nixon
Patricia Nixon
insert real names here, i.e. both your name and your wife's name

[Nixon 2]

Thank you PAnda.

As mentioned on other thread I just came to the States so I am replying now.

Before I left, I was in the Finanzamt and spoke to the lady there who told me that the notification sent to me was for the wrong year.
She also confirmed that by calling the lady who works on our case directly. They said that she will send us a new document which will be for the year 2021.
At the same time she would send us an email with an explanation too. Email is down at the bottom of this message.

And really, couple of days later we have received a new document (exactly like one you posted above) and with the new year of 2021 in it (not like the previous that said 2022).
As you can see in the email the amount is different.
Still the same lines are filled with some amounts and they are:

Zeile 3 = 0
Zeile 5 = 1483
Zeile 9 = 1483

For privacy reasons I am not putting that document here. Do I need to send her another email or so anything else?

Regards,

Nixon.

Sehr geehrter Herr Nixon,

wie heute bereits von der Kollegin im Servicezentrum erläutert wurde die fälschlicherweise für das Kalenderjahr 2022 erstellte Feststellung nach § 2a hinsichtlich ihrer ausländischen Verluste aus Vermietung korrigiert.
Diese erhalten Sie in Kürze auf dem Postweg.

Der nunmehr berücksichtigte Verlust aus ihren Objekten in den USA beträgt 1.750 $, umgerechnet 1.483 €.
Die Berechnung ergibt sich aus der von Ihnen ursprünglich eingereichten deutschen Gewinnermittlung Immobilie USA.
Die geltend gemachten Kosten wurden wie beantragt zum Abzug gebracht.

Die Vorauszahlungen sind, wie im Bescheid erläutert, nicht mehr zu zahlen. Sollte sich daran etwas ändern, erhalten Sie einen geänderten Bescheid.

Die Erstattung auf Ihr Bankkonto resultiert aus den Änderungen im Einkommensteuerbescheid wie im Schreiben bzgl. ihres Einspruchs mitgeteilt.

Bei weiteren Fragen zu Ihrer Steuererklärung wenden Sie sich bitte an einen Steuerberater.

MfG,
Frau that does our taxes.

[PandaMunich 16,915]

>Nixon wrote: Before I left, I was in the Finanzamt and spoke to the lady there who told me that the notification sent to me was for the wrong year.
She also confirmed that by calling the lady who works on our case directly. They said that she will send us a new document which will be for the year 2021.
At the same time she would send us an email with an explanation too. Email is down at the bottom of this message.
And really, couple of days later we have received a new document (exactly like one you posted above) and with the new year of 2021 in it (not like the previous that said 2022).

As you can see in the email the amount is different.
Still the same lines are filled with some amounts and they are:
Zeile 3 = 0
Zeile 5 = 1483
Zeile 9 = 1483
For privacy reasons I am not putting that document here. Do I need to send her another email or so anything else?

"Der nunmehr berücksichtigte Verlust aus ihren Objekten in den USA beträgt 1.750 $, umgerechnet 1.483 €."

The amount is exactly the same.
In the Finanzamt e-mail, it says the loss is 1,750 USD, which is 1,483€ and that is the amount that you say appears in your new 2021 Feststellungsbescheid (which replaces the erroneously issued 2022 Feststellungsbescheid).
So what exactly is your problem?

Is your problem that the 2021 US rental loss that you had declared in your Anlage AUS was actually lower than the 1,750 USD = 1,483€ that ended up being certified as your 2021 US rental loss in the new Feststellungsbescheid 2021?
If that is your problem, you don't need to do anything, as long as you filed a correct tax return, you are not obliged to correct any mistakes the Finanzamt then makes in your favour.

[Nixon 2]

Thank you Panda for your reply!

She made a change when she sent us a new document (renamed to 2021 instead of 2022).
She put new amount in the the new document. In the Zeile 5 and Zeile 9. Both times currency was EUR.
In the 2022 it was EUR 1750. Now in the 2021 it says EUR 1483. That is what puzzled us.

So now just to forward that loss of EUR 1483.00 to the tax filing for 2022. We already did our US taxes for the 2022.

I can't believe that we are done with 2021 German taxes :-)
Thank you once again and have a nice week!

Regards,

Nixon.