US Tax Filing Status MFS/MFJ

[NoDisplayName]

US citizen married to a Thai lady.

Lady has no income, has no US ITIN.

2023 filed Married Filing Separately.

No dependents to qualify for HoH.

 

I'm currently doing my own research on switching to Married Filing Jointly.

This would not change my/our total worldwide income, but I should qualify for the married deductions/exemptions.

2024 Standard Deduction increases from $14,600 to $29,200

2024 0% Capital Gains bracket increases from $47,150 to $94,300

Result being I can take up to $120K LTCG without paying tax, as opposed to $60K.

 

Any downside to this filing status, other than requirement of filing for an ITIN?

Seems we would have to mail in certified copies of her passport and/or ID card along with Form W-7 to apply.

For those having done this, what is acceptable as "certified"?

Does this require a visit to the US embassy for notarization?

I will need to file form W-7 with supporting documents with a mailed-in tax return, after that can e-file?

 

 

 

[gamb00ler]

use your favorite search engine to search for 'disadvantage "married filing jointly" '

 

I've done that and here is probably the most helpful link:

https://www.hrblock.com/tax-center/filing/personal-tax-planning/married-filing-jointly-vs-separately/#:~:text=Benefits of Filing Jointly vs,if you file separate returns.

 

[NoDisplayName]

I don't see any downside, other than the certified copies to attach to the W-7, which I would need for next year's paper tax return.

No state returns required, no itemized deductions.

 

Upside is another $60k in tax-free LTCG.

Upside is higher tax-free limit for interest and dividends.

Upside is eventual SS payments will have a higher tax threshold.

[Guavaman]

If you choose Married Filing Jointly with a nonresident alien spouse, you must elect to treat your spouse as a U.S. resident alien for tax purposes.

 

You’ll need to include all of your spouse's income, which might only be the interest income from her savings accounts in Thailand.

 

There are some issues related to the DTA and election of this treatment under 26 CFR § 1.6013-6.

 

26 CFR § 1.6013-6 - Election to treat nonresident alien individual as resident of the United States.

§ 1.6013-6 Election to treat nonresident alien individual as resident of the United States.

(a) Election for special treatment—(1) In general. Two individuals who are husband and wife at the close of a taxable year ending on or after December 31, 1975, may make an election under this section for that taxable year if, at the close of that year, one spouse is a citizen or resident of the United States and the other spouse is a nonresident alien. The effect of the election is that each spouse is treated as a resident of the United States for purposes of chapters 1, 5, and 24 and sections 6012, 6013, 6072, and 6091 of the Code for the entire taxable year.

(2) Particular rules.

 

 (v) An individual who makes an election under this section may not, for United States income tax purposes, claim under any United States income tax treaty not to be a U.S. resident. The relationship of U.S. income tax treaties and the election under this section is illustrated by the following example.

 

Example.

H, a U.S. citizen, is married to W, a nonresident alien of the United States and a domiciliary of country X. H and W maintain their only permanent home in country X. W receives both U.S. source and country X source interest during the taxable year. The interest is not effectively connected with a permanent establishment or a fixed base in any country. H and W make the section 6013 (g) election. Under article ii (1) of the United States—country X Income Tax Convention interest derived and beneficially owned by a resident of one contracting state is exempt from tax in the other contracting state. Article 4 (1) of the treaty provides that an individual is a resident of a contracting state if subject to tax in that country by reason of the individual's domicile, residence, or citizenship. Under article 4 (1) of the treaty, W is a resident of country X by virtue of her domicile in country X and also of the United States by virtue of the section 6013 (g) election. Article 4 (2) of the treaty provides that if an individual is a resident of both the United States and country X by reason of article 4 (1), the individual shall be deemed to be a resident of the contracting state in which he or she has a permanent home available. Because W's sole permanent home is in country X, under article 4 (2) of the treaty W is treated as a resident of country X for purposes of the treaty. Because W has elected under section 6013(g) to be treated as a U.S. resident (and thus to be taxed on worldwide income), W may not, for U.S. income tax purposes, claim under the treaty not to be a U.S. resident. W, therefore, is subject to U.S. income tax on the interest. For purposes of country X income tax, W is considered a resident of country X under the treaty.

https://www.law.cornell.edu/cfr/text/26/1.6013-6

 

One can imagine some of the other implications of the relationship of DTA and the election under this section; for example:

 

If your non-resident alien wife (treated as a U.S. tax resident alien) owns land and sells the land resulting in capital gains, that income would be subject to interpretation of the DTA and election under section 6013(g) to determine how to apply U.S. tax laws.

[NoDisplayName]

12 hours ago, Guavaman said:

If your non-resident alien wife (treated as a U.S. tax resident alien) owns land and sells the land resulting in capital gains, that income would be subject to interpretation of the DTA and election under section 6013(g) to determine how to apply U.S. tax laws.

 

Exactly why I'm asking for input.  She has all the Thailand assets in her name, with no other income other than a thousand or so in band/bond interest.  House sale would show minimum million baht gain.

 

If I'm correct in that TRD approves gifts being transferred to foreign accounts, that would make joint US filing unnecessary.

[Guavaman]

Regarding house sale for married filing jointly and U.S. income tax:

 

If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse. Publication 523, Selling Your Home provides rules and worksheets. Topic no. 409 covers general capital gain and loss information.

Qualifying for the exclusion

In general, to qualify for the Section 121 exclusion, you must meet both the ownership test and the use test. You're eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale. You can meet the ownership and use tests during different 2-year periods. However, you must meet both tests during the 5-year period ending on the date of the sale. Generally, you're not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home. Refer to Publication 523 for the complete eligibility requirements, limitations on the exclusion amount, and exceptions to the two-year rule.

 

https://www.irs.gov/taxtopics/tc701

 

In this case (house sale), MFJ has a big upside = up to $500,000 tax-free gain under U.S. tax law; however, it appears that she would not be able to claim foreign tax credit for the Thai transfer tax paid to the Land Department due to her election to be treated as a U.S. resident alien, which negates relief under the DTA, similar to the example provided by the IRS regarding interest income.

 

Note: I have enjoyed the upside of 30 years of reduced U.S. income taxes due to electing to treat my non-resident Thai wife as a resident alien and I expect to enjoy tax-free sale of our house in the future; however, I have never considered the implications of this with regard to the DTA until recently. In practice, this appears to be a gray area that the average junior IRS worker would not be able to deal with involving the DTA and issues of non-resident aliens treated as resident aliens.

 

Other issues with upside/downside  may be identified if one conducted deep research into the implications of this election, including the fact that not only one's Thai wife but the U.S. citizen husband is also treated as a U.S. resident while also being a Thai tax resident and how that impacts upon relief provided to U.S. citizens under the DTA.

[Guavaman]

Here is an example of a potential issue:  Claiming the foreign earned income exclusion for a U.S. citizen working abroad due to physical presence or bona fide residence in Thailand might be negated if the U.S. citizen is treated as a U.S. resident due to election of treating one's Thai wife as a resident alien, since that election results in both husband and wife being deemed as U.S. tax residents.

[Smokin Joe]

On 11/15/2024 at 3:39 PM, NoDisplayName said:

Seems we would have to mail in certified copies of her passport and/or ID card along with Form W-7 to apply.

For those having done this, what is acceptable as "certified"?

Does this require a visit to the US embassy for notarization?

I will need to file form W-7 with supporting documents with a mailed-in tax return, after that can e-file?

 

 

 

 

An acceptable copy is one made by the US Embassy or Consulate at a cost of $50. Easy to do if you are close to Bangkok or Chiang Mai.

 

The other option is to apply for an ITIN with an IRS Acceptance Agent. There are five agents listed for Thailand. Four in Bangkok and one in Samut Sakhon. No idea what the cost would be.

 

Acceptance Agents - Thailand

[NoDisplayName]

19 minutes ago, Smokin Joe said:

The other option is to apply for an ITIN with an IRS Acceptance Agent. There are five agents listed for Thailand. Four in Bangkok and one in Samut Sakhon. No idea what the cost would be.

 

 

Thanks, I've sent emails to two of them for details.

 

From the intertubes, it appears some acceptance agents may be authorized to confirm original documents, possibly avoiding the need for an embassy visit.  That would be convenient.  If not, DIY.

 

Will update if/when they respond.

[NoDisplayName]

UPDATE:

 

9,000 baht + VAT,  more details to follow.

[NoDisplayName]

Other option is wife investing in US as a nonresident alien, filing Form 1040-NR.

 

Withholding at source of 30%.

 

Income effectively connected taxed at 10-12% (lower brackets), no standard deduction available for non-residents.

 

Income not effectively connected (dividends and interest in this category) are taxed at 30% unless lower by treaty.  Thai-US treaty sets the rate at 15%, China-US treaty sets the rate at 10%.

 

If <183 days in US, capital gains are NOT taxed by the US, but may be taxed by Thailand.  (I assume only if remitted.)

 

So for a Thai wife, in order to reduce taxes, invest in ETF's that pay low/no dividends, focused on capital appreciation rather than income.