I'm a US citizen, a permanent resident in Japan, and retired. Among my retirement investments, I have a small Traditional IRA in the US that I opened years ago while working in The States, and I funded it for just a couple of years with $7,636 I earned before moving to Japan. Converting that $7,636 using the annual exchange rates for those years, I get an equivalent of 887,342 yen. The account (labeled a "deferred annuity" and paying a fixed rate of return) is now worth about $23,000, and it has an annual rate of return of 4.23%.
Starting in 2024, I've set up an automatic withdrawal of $1,500/year from the IRA. At that rate, I figure the account will be exhausted sometime around 2045.
Questions:
When I report the $1,500 (roughly 230,000 yen) to Japan for my 2024 taxes, can I subtract out a part for my cost basis?
If so, how in the world would I figure that amount? Does anyone know?
And then should I report the IRA gain as interest, dividend, or capital gain in Japan?
As for US taxes, because this is a Traditional IRA, I assume I'd report the entire $1,500 on IRS Form 1040, Line 4b (IRA taxable amount) and then can claim a Form 1116 Foreign Tax Credit for what tax I paid Japan. Does that sound correct?