How can I keep my U.S. investment portfolio and continue buying stocks if I move to Japan…?

[christianzealot4]

Hi, I’m a Japanese citizen with permanent residency in America. I got my re-entry permit sorted, and I am moving to Japan in 2 months, but just realized I may need to do something about my investment portfolio before I move. Right now I have the bulk of my stocks on SoFi, and some on ETrade.

Unfortunately, SoFi doesn’t allow users to operate their accounts from outside the U.S., and will shut your account down if you are out of the country for more than 6 months. I believe ETrade has a similar policy.

I read online that some people in my situation will use a VPN to access their portfolio from wherever they move to, as if they are still in America, and they have no problems. However I am wary of trying this method in case I run into problems with it.

What is the most convenient method to be an expat in Japan like in my situation and continue to buy and hold U.S. stocks…? Any recommendations on trading platforms, helpful websites…etc. would be greatly appreciated.

P.S. I have my mom here so I do have a way to transfer my address to my mother’s address.

 

[hark]

@christianzealot4 also you should rebase your portfolio before moving to Japan because they will tax you on gains based on original purchase cost in yen if you don't.

 

[ethzz]

@hark Tho it may mean US taxes, this is a reasonable consideration--tho perhaps for parts of, and not for an entire portfolio. If something was bought when the rate was ¥80/$1 (or even ¥110), selling at ¥150 would result in quite a large gain, just due to that.

 

[christianzealot4]

@ethzz Hi thank you for your insight. I read the comments here about rebasing before moving and I am super lost... can you explain in simpler terms please? I get that the yen is really weak now and I understand that it is projected to stay this way, perhaps even get weaker... and I think you guys are saying moving to Japan with a portfolio based in America will negatively impact my taxes when I file them in Japan...?

 

[ethzz]

@christianzealot4 Say you bought a 100 shares of some stock/ETF for $100/share, total cost $10,000. Say also that you bought it back in 2011 when the yen was strong, ¥80:$1.

Your cost basis, in yen terms would be ¥80 * $10,000 = ¥800,000.

Now imagine that you've moved to japan this year, and you sell those shares. Let's say also that it was a real stinker, for some reason, and you give up and sell it for $100/share. So again, 100 shares for $100/share yields you $10,000.

But now the exchange rate is ¥155:$1. So while your basis is calculated as above (¥800,000), the proceeds of the sale are now calculated ¥155 * 10,000 = ¥1,550,000. And even tho that stock was a horrible stinker in dollar terms, you have a gain: ¥1,550,000 - ¥800,000 = ¥750,000 (approx $4800). You'll owe 20% here on that gain, even tho in the US it'd go untaxed.

This is referred to as a 'phantom' gain, and it should be obvious that if it was a stock/ETF that did well over those years, the effect would be amplified. And note that even a loss in dollar terms can turn into a taxable gain here due to the change in the yen-dollar rate.

Within a tax-sheltered account, you should be able to sell things and then re-purchase the same or similar things before you come. For re-buying exactly the same thing, be careful of the US wash rule, but depending on your account, you may be able to do something like sell SPY and then buy VOO to avoid that.

So by rebasing you would have upped your cost basis in yen terms to present-day exchange rates, and then presuming you then sell after moving here, there would be far less of those phantom gains to worry about.

For a taxable account, you'd have to calculate what your US taxes would be for selling prior to coming here, then do some calculations similar to the above to see what the relative tax 'pain' would be. (Tho with the degree to which the yen has recently weakened, it'd be my guesstimate that rebasing would win out--depends on your US tax rate.)

 

[christianzealot4]

@ethzz wow, I never thought about this. so you're saying that because the yen is at a historical low, there is a high chance that I will experience a "phantom" gain, and to avoid being taxed on my "phantom" gain in Japan, I should rebase my portfolio before moving... is that correct..? I'm going to watch some videos on "phantom" gain now. Thank you so much for informing me !

 

[christianzealot4]

@ethzz So I just did some math and checked my portfolio. I started investing around 2020-2021, and I chose some pretty risky stocks. Most of my positions are down about 40%, sometimes more. I think most of my stocks are down enough where I don't have any phantom gains. Should I still sell and rebase my positions...?

Also, you seem really knowledgable and I have a few more investment/tax related questions. Would it be okay to private message you about them...?

 

[ethzz]

@christianzealot4 Nah, instead of via PM, IMO it's better to keep it in the open. That way, if I say something wrong, or leave some important detail out, etc., someone can jump in with a correction.

If you're worried about personal info, maybe use a throwaway account?

I think most of my stocks are down enough where I don't have any phantom gains. Should I still sell and rebase my positions...?

Hard to say, to do it properly you'd need to check the exchange rate(s) on the dates of purchase, and figure it out for each one. If you have several things you bought about the same time, it might be possible to do it for one to use as an estimator for some others.

 

[christianzealot4]

@ethzz Got it, thank you once again. I may make an updated post soon inquiring further about my specific situation. I basically want to figure out how to better manage a portfolio in my situation (U.S. expat, based in Japan). The tax situation seems to be a headache, so I want to figure out what kind of method is the most simple/cheap...? Owing taxes to both countries sucks, plus the work required to file for both is also a headache.

Also, I'm a green card holder, and if the U.S. terminates my green card (I applied for a re-entry permit so I should at the very least be good for another 2 years) I'm wondering if I would have to sell off my American portfolio, or if there is a way to transport it safely to a brokerage in Japan...?

 

[jariel]

@hark Yeah. I’ve heard about this. I heard it’s best to reset your cost basis before you leave by selling everything and rebuying. Which of course sucks because you have to pay tax on your gains, and kind of loose that compound interest you’ve accumulated, just to then re-buy everything.

But this is also assuming the yen/dollar will continue to be as drastic a difference as it is now.

It does feel a little unfair though. Maybe a better metric would be to base capital gains against the exchange rate when you physically moved to Japan.

 

[hark]

@jariel I don't think this is really all that tightly linked to the exchange rate per se. I think the issue occurs because Japan would then have the right to tax you on all gains since when you bought the stock.

i.e. buy stock in 2005 for $10

in 2024 it's now worth $100.

If you move to Japan in 2024 and then sell it, Japan taxes you as if you gained $90 even though the gains happened before you moved.

 

[jariel]

@hark Yeah, that makes sense. I was thinking more about the bigger gains you might have to pay due to the fluctuation in the exchange rate.

So in your example, you buy a stock at $10 in 2005 when the yen was ¥110 to $1. But you move to Japan and sell in 2024 when the stock is worth $100 but the exchange rate is now ¥150 to $1.

So you have to calculate the yen at the time of purchase ($10 x 110=¥1,100) then the yen at time of sale ($100 x 150=¥15,000) so a gain of ¥13,900 (¥15,000 - ¥1,100.)

Where in an alternate reality where the yen was the same in 2024 as it was in 2005, your gain would only be ¥9,900.

So that $90 gain in yen will fluctuate depending on the exchange rate.

 

[hark]

@jariel Yeah, I'm definitely not discounting that either but even without the exchange rate bit you can still get murdered by that sort of cost basis.

 

[jariel]

@hark Definitely.

 

[arcticwind]

@hark wow... first I've heard about this. Maybe I need to consult an accountant now... What a headache.

 

[hark]

@arcticwind If you're not a Japanese citizen, then while you are a non-permanent tax resident you could rebase while already in Japan. It can create remittance issues but would definitely be worth it to avoid getting hit with all of your gains.

 

[arcticwind]

@hark mostly annoying because I didn't expect to foot the tax bill yet... to avoid the wash sale rule and reset cost basis I guess you need to sell and chill for a bit?

 

[autumnstar]

@arcticwind Wash sale only applies to tax loss, so you can freely sell anything that is up and for your losers yes you will have to wait if you want to buy them back and also claim the loss.

 

[ethzz]

@autumnstar Yep.

 

[christianzealot4]

@hark hi, thanks for the reply. Can you explain this further..? I am a tax noob and I am lost