The sale of timber is considered capital gain income so you can report it in TurboTax as a sale of invesment. If there is a treaty excluding the income from taxation in the United States, you can enter that as follows:
- Choose the Federal option on your left menu bar
- Choose Wages & Income
- Find Less Common Income in the list of income sources
- Use the Show More option to expand the choices and choose Miscellaneous Income, 1099-A, 1099-C
- Choose the Other Reportable Income option and find Other Taxable Income in that section
- Enter a description for your treaty and the amount as a negative number
You need to include Form 8833 Treaty-Based Return Position Disclosure with your tax return. TurboTax does not support this form, so you will have to complete it separately and attach it to your tax return which you will have to file by mail.
If you exclude the income from taxation based on a treaty, you cannot also take a credit for foreign taxes paid on it. Otherwise, you can deduct the foreign taxes as an itemized deduction or take a credit for them to the extent of your US tax that is associated with the foreign income.
You must report the income in the year you received the proceeds. To take a foreign tax credit or deduction, you can treat the accrued foreign taxes as though they were paid in the current year.
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