Here is what ChatGPT says, it i is in line with your option number "3":
How can I enter the gross sale proceeds of foreign land sales as different amounts in federal and California filing? In federal the foreign tax paid is not deducted from gross, but that can be claimed as FTC. For California the gross has to be reduced by the foreign tax paid. How can we manage to show the amounts for the same sale differently for federal and California filing ?
ChatGPT said:
To handle this correctly, you need to report the same foreign land sale with different gross proceeds and tax treatments for federal and California because of their differing tax rules:
Summary of the Issue:
Federal: Report full gross proceeds. Foreign tax paid is not subtracted from the gross sale; instead, you claim it as a Foreign Tax Credit (FTC) or deduction.
California: Does not allow the FTC, so the foreign tax paid must reduce the gross proceeds (treated like a selling expense).
How to Do This in Tax Software (like TurboTax, Lacerte, ProSeries, or similar):
You’ll need to use a state-only adjustment method. Here’s how:
1. Enter the full gross proceeds for the federal return:
2. Adjust the California return to reflect reduced proceeds:
Because California doesn’t allow the FTC or deduction for foreign tax paid, you’ll need to reduce the gain manually:
Option A: Adjustment on CA Schedule D or 540
Use Schedule CA (540) – this form reconciles federal and CA income.
On Part II, line 8z ("Other income adjustments"), enter a negative adjustment to reduce capital gains for the foreign tax paid.
Example entry:
"Adjustment for foreign tax paid on land sale – CA doesn’t allow FTC"
Option B: Enter a different amount in the CA column of the 8949 or D
Some professional tax software lets you enter a CA-only column for 8949/D differences.
If so, reduce the proceeds by the foreign tax paid for the California version only.
Additional Tip:
Keep good documentation explaining why the gross proceeds differ between federal and state. If the difference is questioned, you can point to California’s disallowance of the FTC and the guidance in FTB Pub. 1001.
