Hi @pk,
Thanks a lot for your reply.
Please see my reactions to your points below:
(a) My rough calculation suggests that in the year the house is sold, the allocated US tax to the doubly taxed income would be significantly higher and would yield a significantly higher allowable tax credit. This is because the share of taxable income from foreign sources (after all the definitely related deductions and the pro-rata allocation of non-definitely related deductions) on total taxable income from all sources would be high, assuming that the capital gains (incl. depreciation recapture) from the sale of the house count as foreign income. Total tax due would also be high (because of the capital gains tax and depreciation recapture), so high share of taxable income from foreign sources combined with high tax due gives a relatively high maximum amount of credit allowed. This would allow me to use the FTC from the year of the sale of the house, as well as most of the FTC carried over from previous years. Does this seem reasonable?
(b) Yes, in my calculations above I am assuming the gain is computed as per US tax laws.
(c) Yes, in my calculations above I am dividing the gain into capital gain (taxed at 15% based on my assumptions) and depreciation recapture (taxed at the marginal taxation rate as ordinary income).
The country is Italy, where you pay income tax on rental income, but there is no capital gains tax or depreciation recapture when you sell a rental property.
Yes, I am a US person.
