Sorry if this is already addressed somewhere but we couldn’t find it. We’re in the planning stages of our PT Golden Visa investment but are struggling to get clarity or consistent answers on just the general way this stuff is taxed for US citizens (i.e., we don’t need specific advice or specific forms… we just want to understand the overview).
From what we can gather, it seems like the gains observed in these Capital Gains funds (re-invested automatically) are not taxed in Portugal but are taxed annually in the US at a Capital Gains rate. And then when we eventually take all our money out (e.g. after 6 years or so), there are no additional income taxes (because they are still paid just as US Capital Gains).
So that summarizes to: Yearly taxes, with none of it being taxed as traditional “income”.
I’ve been in IMGA since 2021. You add some LTCG and regular income to your tax sheets, so you pay extra in taxes, despite realizing no gains (e.g. IMGA does not send you money, your investment just goes up)
Haven’t sold yet, but presumably, at the end if I’ve paid more in taxes than I earned I’ll get a refund/deduction, and if less, I true up the difference.
When you say:
You add some LTCG and regular income to your tax sheets
What do you mean by “some”? How is it determined how much is LTCG and how much is regular income?
To follow up on my own question: I read the provided Bogleheads link and think I now understand that the split between LTCG and Ordinary income will depend on the specifics of how IMGA (or other fund) gets its gains that year (i.e., out of our control as investors). With that in mind, then, can you just give me an approximate sense of that split (LTCG/Ordinary Income) in your experience with IMGA?
This all matters to us because it will impact our deduction plans, which will impact a variety of our decisions. Thanks!
You receive 2 numbers in your annual PFIC report issued by the fund. Long-term capital gains incurred by fund when it sells holdings, and ordinary income which includes interest/dividends earned by the fund as well as short-term capital gains. You report these numbers on an 8621, and then slot them into your 1040 in the appropriate places. Your cost basis (which you keep track of) increases by these amounts. When you sell your fund shares, you use the updated cost basis to calculate your (VERY long-term) capital gains, and pay taxes on this. In reality, if the fund tends to have significant buy/sell transactions, you can expect to have paid a hefty tax on these notional gains they incur, so possibly by the time you liquidate you may actually show a capital loss. This can only be written off against capital gains, or used at the rate of $3000/year against normal income.
I am not a tax advisor or consultant!
Hi. Thanks for explaining this! I think I basically have a handle on how this works now… but it also seems like this amounts to “an unknown amount will be LTCG and an unknown amount will be ordinary income”.
I’ll ask the funds about their histories on this, though, now. So at least I know what to do. Thanks!
With Optimize in 2024, realized capital gains and ordinary income (which is reduced by their management fee) were each approx. 3.5-4% of investment capital.
This is an excellent summary and is what I was advised from a specialist in international US tax. Optimize BTW can provide appropriate documentation (PFIC) to meet the best case senario so long as you do the proper election in the year you invest.
Additionally, I track the current year asset price (in EUR), and apply a USDEUR conversion to get the TOTAL gain in USD. Realizing that IMGA will split this according so some wizardry into LTCG and Ordinary Income.
However, it at least gives me a sense of the gains that I might be subject to such that I can plan to harvest some losses to offset the gains.
I’m interested in how your sheet is structured, if you don’t mind sharing? Specifically around the asset prices and conversion. I could do with improving mine
Re splitting wizardry, I had an interesting back-and-forth with Optimize trying to get the appropriate values in their PFIC report. At one point we realized they had not reduced reported income by their management fees, which resulted in a significantly higher tax bill. They corrected this by reducing the LTCG and Ordinary Income numbers by these fees, prorata. My research lead me to correct this result and shift the reduction due to fees solely into the Ordinary Income bucket. I’m curious how IMGA manages this allocation?
The problem to me was how to do tax planning. And that as I saw it, the IMGA fund has two variables (asset price and currency) that affect gains, rather than one (asset price). Hence the complication.
The below is what I came up with. It bears saying I am in no way a financial professional. I welcome any thoughts on improving this.
In the table below, everything other than the bottom row is history, the actual values as of 31 Dec 20xx. No updates are made to these. FWIW, I invested in 2021, so the 2020 numbers are there just to make the table work when I entered 2021 numbers.
The bottom row is the current state as of today, and is what I pay attention to.
Columns:
The P/S € comes from the Financial Times; entered manually every so often.
Portfolio € Gain = (Current P/S € - Previous year close P/S €) / Previous year close P/S €
EURUSD is the current exchange rate. I do this in google sheets, so I use the formula =GOOGLEFINANCE(“currency:eurusd”)
Portfolio value $ = #shares * P/S € * EURUSD
Gross Gain = (Portfolio Value $ - Previous Year Close Portfolio Value $)
Gross % Gain = Gross Gain / Previous Year Close Portfolio Value $
EoY
P/S €
Portfolio € Gain
EURUSD
Portfolio Value $
Gross Gain
Gross % Gain
31 Dec 20
4.79
1.136911
$326,394
31 Dec 21
5.96
24.43%
1.073231
$383,372
$56,977
17.46%
31 Dec 2022
6.35
6.54%
1.07025
$407,324
$23,952
6.25%
31 Dec 2023
7.17
12.91%
1.10555
$475,092
$67,769
16.64%
31 Dec 2024
7.4
3.21%
1.03248
$457,924
-$17,168
-3.61%
Curr
€8.84
19.46%
1.13838
$603,144
$145,219
31.71%
So, as of 3 Jun 2025, I’m hypothetically sitting on 145k$ in gains. Which means nothing, as there will be asset & currency price fluctuations between now and 31 Dec. But - as the year progresses, it does give me some heads up of what IMGA might be reporting and whether I should be planning on some loss harvesting to counter LTCGs they might stick me with. Which is really what I was trying to achieve - some ability to do tax planning.
Additionally, as previously mentioned, IMGA does what ever wizardry they do to split said gains into LTCG and Income. And I have never had the two values add up to the actual gains I calculated. For example, in 2021, the calculated gross gain I have above is about 57k$. The IMGA reported numbers added up to around 77k$. Why the discrepancy? Dunno. Likewise, last year, I had a gross loss of 17k$. But IMGA had a gain of over 28k$. Again, dunno why.
Anyway - HTH - and again, I appreciate any suggestions for improvements.
There is only a weak correlation between asset price and what a fund reports as its pass-through income. The asset price may show a substantial gain, but if the funds only sells specific assets at a loss they will report a LTCG loss. Similarily if they sell specific assets at a large gain, while the asset price shows a far smaller gain or even a loss.
You can ask the fund to provide you with the underlying transactions from which they derived their reported LTCG. Optimize did this for me without my needing to ask them
Jon have you had LTCG (or loss) to pay US taxes on each year even though the funds are just sitting there with Optimize? This is my first year. I was told that there would be no tax reporting (could be my misunderstanding) on our fund. Should I be attempting to do estimates for US Fed Taxes ?
?