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I've recently moved from the U.S. to France and my investment company has put my account "on hold" to avoid tax complications on their side (common practice these days). That means I can continue to hold the funds, and dividends will be automatically reinvested, but they won't let me buy new shares of anything. There is another company that will allow me to invest like a normal customer while living outside the U.S., but they cannot manage the mutual funds that I currently hold. So to close my current account, I would have to liquidate everything, resulting in massive capital gains tax. I'm in the lowest possible tax bracket (grad student), but the liquidation on my taxable (non-IRA) account will total around $120K, with gains around 70%. So two questions:

  1. Is there some way to move from one fund to another without paying the capital gains now?
  2. Does it make any difference that I am being forced to move the money--i.e., can I claim some kind of circumstantial exemption, showing that the money has been directly reinvested?

There is some discussion in a similar question, which is relevant and helpful for my situation, but in that case the shareholder is not under time pressure to move the funds.

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    what does "on hold" mean? Did they liquidate the funds, or did they stop you from trading? – mhoran_psprep Oct 25 '17 at 10:11
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    They just stopped me from trading. I can hold the funds, and I can sell them, but I can't buy anything. Dividends will be automatically reinvested (as usual). So perhaps an alternative would be to keep the majority of the funds in the "on hold" account and move my new investments to the new account. It's kind of messy, but maybe it's the best thing. – Byron Hawkins Oct 25 '17 at 10:47
  • My gut would say you'd need to find a broker willing to work with you overseas, who can hold the specific funds you currently own, and have those funds transferred to the new broker. – Grade 'Eh' Bacon Oct 25 '17 at 12:25
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Selling one fund and buying another will incur capital gains tax on the sale for the amount of the gain. I'm not aware of any sort of exemption available due to you moving out of the country. However, long-term capital gains for low-tax-bracket taxpayers is 0%. As long as your total income including the gains fits within the 15% regular tax bracket, you don't pay any long-term capital gains.

Options for you that I see to avoid taxes are:

  1. Sell some of it each year, selling as much as you can while staying within the long-term 0% capital gains rate. (Really, anybody with taxable investments and is in the 0% long-term capital gains bracket ought to be seeing if they can do this to some extent, since it just raises your basis without paying any tax.) I'm assuming that when you say you're on hold from buying more, that doesn't mean that you're on hold for selling as needed.
  2. Find yet another broker that both allows you to invest while you're living abroad, and is capable of holding the mutual funds you currently hold. If you do an in-kind transfer to that broker (and thus aren't selling), then no capital gains tax would be due yet.

Note that even if you do sell it all, it's only the amount of gains that would take your income over the 15% normal tax bracket that would be taxed at the long-term rate of 15%, which may not end up being that much of a tax hit. It may be worth calculating just how bad it would be based on your actual income.

Also note that all I'm saying here is for US federal income taxes. The state you most recently lived in may still charge taxes if you're still considered a resident there in some fashion, and I don't know if your new home's government may try to take a cut as well.

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