@Ice888 , agreeing with my colleagues @M-MTax and @Opus 17 , that this should be viewed as One transaction and that ( and using the example that you provided )
(a) your own basis would be 0.4 *500,000 + 0.3 * 2,500,000 ( FMV being 2,500,000 for the whole [property ) for US tax purposes. ( i.e. 950,000).
(b) Your share of the sales price ( assuming no transfer tax and /or commission etc. generally included in the sales expenses ) is 0.7*2,500,000. thus it is 1,750,000.
(c) Your portion of capital gain ( assuming that the property was not rented and/or depreciated ) is LESS 975,000 i.e. . 800,000
(d) You and your spouse having meant the ownership and use clauses, you can exclude 500,000 of this gain from taxable income i.e. your taxable gain is 300,000.
(e) You having paid 100,000 and for purposes of form 1116 ( foreign tax credit ), your foreign source income that is being taxed by both US and the "other country" is 300,000.
I am assuming here that (1.) that US has a tax treaty with the country where the property was situated and the gain being taxed by that country under its tax laws and (2) the 100,000 is your portion of the foreign tax i.e. allocated to your 70% of the asset ,(3) you & your spouse have not used this exclusion during the last two preceding years and (4) you are both US persons ( citizen/ GreenCard / Resident for Tax Purposes ) during those two years of ownership and usage.
Does this make sense ? Is there more I can do for you ?
