Form 1045: 2025 Guide for Australians with US Capital Gains

Many Australians invest in US shares, managed funds, or even property—and in 2025, the US tax landscape is evolving. If you’re an Australian resident with recent US capital gains, Form 1045 could be your ticket to a valuable tax break. But what exactly is Form 1045, and how do recent US tax updates affect Australians? Let’s break down what’s new, who’s eligible, and what steps to take.

What is Form 1045 and Why Should Australians Care?

Form 1045, known as the “Application for Tentative Refund”, is a US Internal Revenue Service (IRS) form. It allows taxpayers to claim a quick refund when carrying back certain losses—most commonly, net operating losses (NOLs) or capital losses—to prior tax years. For Australians with US assets, this can mean recovering US tax paid on capital gains if you later realise losses.

• Scenario: You sold US shares in 2023 for a significant gain and paid US tax. In 2024, you incur a large capital loss. Form 1045 lets you apply that loss to your 2023 gain and claim a refund.

• Why it matters in 2025: The IRS has updated guidance on loss carrybacks and cross-border reporting, making it more relevant for expats and global investors.

Key 2025 Policy Updates Affecting Form 1045 Filers

This year, the IRS introduced several tweaks that impact Australians with US-source income:

• Electronic Filing Mandate: Starting January 2025, Form 1045 must be lodged electronically via the IRS e-file system for most taxpayers, including non-residents. Paper filings are only accepted in limited hardship cases.

• Loss Carryback Rules: For losses incurred in 2024, you may carry them back up to 3 years (previously 2) for capital losses, following updated IRS guidance. This offers more flexibility for those who saw big gains during the US tech rally in 2021–2023.

• Foreign Tax Credit Implications: The ATO and IRS continue to share data, and double taxation remains a risk. Form 1045 refunds may affect your ability to claim the US foreign tax credit on your Australian return, so timing and documentation are crucial.

For Australians in the US or with US investments, keeping up with these changes is essential to avoid missing out on refunds or triggering audits.

How to Use Form 1045: Practical Steps and Real-World Examples

Getting a US tax refund via Form 1045 involves careful planning and accurate reporting:

• Determine Eligibility: Confirm you had a net operating loss or capital loss in 2024 that can be carried back to a prior year in which you paid US tax on gains.

• Gather Documentation: You’ll need your prior years’ US tax returns, proof of losses (e.g., brokerage statements), and records of tax paid. For Australians, ensure you also have your ATO records handy for cross-checking.

• Prepare and File: Complete Form 1045, detailing the carryback calculation and refund requested. In 2025, use IRS e-file to submit—many tax agents now offer digital lodgement for expats.

• Monitor Refund and ATO Reporting: Once the IRS processes your Form 1045, you’ll receive a tentative refund. You must report any US tax refunds to the ATO and may need to adjust your foreign tax credit claims on your Australian return.

Example: Sarah, an Australian living in Sydney, sold US shares in 2023 and paid $12,000 in US capital gains tax. In 2024, she sold a different US holding at a $50,000 loss. By filing Form 1045, she carries back the loss, amends her 2023 US return, and receives a $12,000 refund. However, she must also adjust her ATO foreign tax credit to avoid double-dipping.

Common Pitfalls and Tips for Australians Using Form 1045

• Timing is Everything: Form 1045 must be filed within one year after the end of the loss year—so don’t delay.

• Double Taxation Risks: If you claim a US refund, you may owe more to the ATO. Coordinate your filings for accuracy.

• Currency Issues: US and Australian tax years differ, and exchange rate fluctuations can affect your reporting. Keep meticulous records.

• Seek Expert Help: US-Australia tax treaties are complex. Consider a tax agent with cross-border expertise to maximise your refund and stay compliant.

Conclusion: Turn US Capital Losses into Tax Relief in 2025

Form 1045 offers a valuable opportunity for Australians with US investments to recover tax on capital gains by carrying back losses. With the IRS tightening rules and boosting e-filing, it’s crucial to act quickly and coordinate your US and Australian tax strategies. Don’t leave money on the table—review your 2024 losses, gather your documents, and see if Form 1045 can work for you this year.