You sold property in India and paid $22,000 in capital gains tax there. TurboTax shows your U.S. tax bill going up by $30,000, but when you try to enter the foreign tax credit, it only reduces your U.S. tax bill by $8,000, not the full $22,000 you expected.
Here are some reasons why:
- FTC Limitations: The foreign tax credit is limited by the amount of U.S. tax you owe on your foreign income, not by the amount you paid overseas. So, if the U.S. tax on your Indian capital gain is only $8,000, that might be the maximum credit you can receive this year.
- Carryforward Option: The extra $14,000 isn't lost. You can carry it forward to future years and use it to offset future U.S. tax liabilities.
Since you're using TurboTax Desktop, you can check your entries by following these steps:
- At the top of the screen, click on "Forms."
- Open Form 1116 to ensure the income is reported as foreign and the correct country information is listed.
