@nikshep_s thank you for the clarifications. My understanding of the situation is as follows;
(a) you, a US person ( citizen/ GreenCard/ Resident for tax purposes ) was bequeathed a property in India through inheritance.
(b) you sold this asset during 2024.
(c) The country of the asset ( India ) taxed you based on its laws --- note that India uses an indexing process ( to recognize inflation based adjustment to basis ) and then taxes the remaining / resultant gain. ( although I think India holds a 20% tax through tax at source rules and then adjusts once the determination is finalized i.e. after tax year has closed ).
For US tax purposes;
1. you compute the gain under its rules -- i.e. stepped up basis to FMV at the time of passing of the decedent. Thus if you hold the property for quite some time after the inheritance is affected , the basis remains the same but the gain is likely to quite increased , even allowing for exchange rate degradation.
2. Taxes imposed/ paid on the US gain is the amount that is being doubly taxed ( it is actually the lesser of the US gain and the Indian gain) and this goes on your form 1116 as the foreign source income subject to double taxation. Note that what we are trying to here is determine the amount in US$ that is being taxed by both taxing agencies.
3. While most use the total foreign taxes paid for requesting credit ( it should really be the foreign tax on the amount that is being doubly taxed & allowing for different tax rates by different countries ). Also any foreign tax credits banked from earlier years only adds to the total amount of foreign credit but may or may not gain anything . This is because form 1116 has two limitations ---- (a) ratiometric allocation of foreign tax credit based on the tax on foreign source income to that on world income and (b) the lesser of taxes imposed on the foreign source income -- US and Foreign taxing authority.
Does this help or am I creating more confusion? If you like a more private / detailed discussion on unique features of your case ( that is not of interest to general community ) you are welcome to PM -- but please no personally identifiable info. -- identity sanitized.
pk
