Yes, you do need to pay US tax on the property but you can apply for a foreign tax credit to receive credit for the taxes paid in Portugal. The calculation does factor in the taxes that you paid in Portugal versus the US tax rate and you receive a credit for the difference.
First you need to report the sale of your Foreign property. This is accomplished by going to.
- Federal
- Wages and income
- Investments and Savings
- Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B)
- This would be reported as Other when you are asked to make this choice.
Once the sale has been reported, you will request a foreign tax credit.
- Go to Federal
- Deductions and credits
- Estimate and other taxes paid
- Foreign Tax Credit>start or revisit
- At some point in the interview, it will ask if you wish to take a deduction or a credit. Take the credit.
- Navigate and record the entries that the program asks for and when you reach the page that mentions Foreign Tax Credit Worksheet, this is where you take notice.
- The first that you will be asked is what category of income is it, you will say Passive income.
- Next screen will say Country Summary, select add a country
- When it says Other Gross Income - XXXX, Here you put in the Gross Amount of the sale..
- Then you will navigate through the screens until you come to a screen that says Foreign Taxes Paid - XXXX, here is where you record the amount paid under Foreign Taxes.
- Finish out the section.
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