# FEIE, FTC, and Capital Gains



## elyobjk (Nov 23, 2020)

Hi all,

I'm a U.S. citizen living and working in Portugal for the past two years. I receive Restricted Stock Units through my employer that I'm considering selling, and I'm trying to understand the U.S. tax implications for 2020. I believe that taking a combination of the FEIE and the FTC should ensure that I won't owe any tax in the U.S., but I'm looking for someone to tell me whether or not this is correct or if I should be approaching this differently.

My scenario:

I'm paying income tax in Portugal.
I have vested stock value (stock available to me to sell) which is taxed as income in Portugal.
Combined, my income + the stock value is less than $107K
I will be making capital gains from the sale of the stocks (short-term sale).
I will be paying higher taxes in Portugal compared to what I'll owe in the U.S.

My understanding is that I can take the FEIE to exclude my income + the stock value since it's below the ~$107K limit for 2020. Then for the capital gains I'm planning to take the FTC.

I would use the FTC only on the entire amount (income + capital gains), however I used the FEIE last year and I'd like to have the flexibility to use it in future years.

Will this work? Or is there something else I should consider? 

Thanks in advance for your guidance.


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## Bevdeforges (Nov 16, 2007)

elyobjk said:


> My understanding is that I can take the FEIE to exclude my income + the stock value since it's below the ~$107K limit for 2020. Then for the capital gains I'm planning to take the FTC.


This is going to be your problem. You can only use the FEIE to exclude your "earned income" - which means salary. Bonuses like stock options are not considered "earned income" in this context. (No matter how Portugal may tax the grant,)

The other potential "gotcha" is your employer. If your employer is a US company and you're receiving stock options in the US company, you're fine. If you're working for a Portuguese or other foreign company, then things could get tricky.

Basically, though, you use the FEIE only on your salary. You then use the FTC for the "passive income" - i.e. the stock value if that is taxable in the US (it has been a LONG time since I had to deal with taxes on stock options so be sure to check on how this is taxed these days), plus the capital gains, Read the instructions carefully for the form 1116, as you need to split your income into the various components and you can only offset taxes paid in Portugal against the appropriate category of income.


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## elyobjk (Nov 23, 2020)

Bevdeforges said:


> The other potential "gotcha" is your employer. If your employer is a US company and you're receiving stock options in the US company, you're fine. If you're working for a Portuguese or other foreign company, then things could get tricky.


Thanks so much for your response! 

My employer is not a US company. However, the company is publicly traded on the NYSE, and the income I receive from stocks is in US dollars. Since I'm a US citizen, the cost basis and proceeds are reported to the IRS by the brokerage company, and I receive a 1099-B (if I worked for a US company I believe the cost basis, e.g. the stock value at the time it vests, would be reported on my W-2). Not sure if that makes things less tricky or more tricky!



Bevdeforges said:


> Basically, though, you use the FEIE only on your salary. You then use the FTC for the "passive income" - i.e. the stock value if that is taxable in the US (it has been a LONG time since I had to deal with taxes on stock options so be sure to check on how this is taxed these days), plus the capital gains, Read the instructions carefully for the form 1116, as you need to split your income into the various components and you can only offset taxes paid in Portugal against the appropriate category of income.


Thanks for your guidance. I've found here some information about how my type of stock (RSUs) is taxed. It says near the bottom of the article "the value of the stock is reported as _ordinary income_ in the year the stock becomes vested." After a bit of googling I'm under the impression that the value of the stock at the time of vesting is considered to be_ earned income _as well, and will be taxed in the US at my marginal rate. Could I not then use FEIE on this amount? I understand that the capital gains are taxed differently, that part is clear and I'll be sure to read the form 1116 instructions carefully!

Hoping that this post can help others who might be in the same situation.


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