US Expat Tax loss harvesting with currency mismatch and foreign tax credit

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oslocal
Posts: 144
Joined: Sat May 21, 2016 5:30 pm

US Expat Tax loss harvesting with currency mismatch and foreign tax credit

Post by oslocal »

After extensive googling, I am unable to find any good advice on how to go about managing my local investments (outside the US), specifically avoiding tax pitfalls. The closest I have gotten (save obtaining paid professional advice) is Thun Financial mentioning that currency mismatch is something to be aware of when managing a portfolio that is taxed in two jurisdictions.
Specifically I am trying to understand the mechanics of how the foreign tax credit would be applied.

Here is some background info for context:
Dual taxpayer (US Person and Norwegian Resident)
No taxable (to the US) investments in the US.
We have a handful of single stock holdings in Norway which pay dividends which are taxed locally at about 31% rate, however you get to exclude some form of CPI/COLA rate from income, meaning that for a 3% yielding stock, only say 2% is actually taxed. Further, I can claim (or carryover) a foreign tax credit of this amount against my US tax return.
This year we have sold some losers (in local currency), and I'm trying to figure out how to navigate the US taxes.

#1 of these stocks had a local loss of about 2000 NOK (roughly 220 USD), but due to currency fluctuations, a gain of 20 USD.
- Here I will realize a tax benefit of about 600 NOK (65 USD), and be liable for a couple bucks in the US.
#2 of these stocks had a local loss of about 5500 NOK (roughly 600 USD), but a currency adjusted loss of 730 USD.
- Here I will realize a tax benefit of about 1700 NOK (roughly 190 USD), but unclear what happens with US taxes. If I have no other capital gains, there should be no "allocation" of this benefit other than reducing my total FTC available (which exceeds the allowable credit). I suppose I also would be able to reduce taxable income by 730 USD.

Question 1: Are capital gains reported on a separate form 1116, from dividends and interest and as such uncoupled?
Question 2: Do I somehow need to report on form 1116 the "negative taxes" associated with capital losses? Or can I effectively "double dip" with TLH so long as I don't have any gains in US currency?
Question 3: Should I for the rest of this year, avoid realizing any gains and instead try to bunch these by alternating years in order to claim a foreign tax credit on capital gains?
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