Deductions & credits

When you are reporting the sale of your foreign home, you will include all taxes that are not considered foreign income taxes on the capital gain but are required related to the sale as part of the selling costs. So you will report the net sales amount by reducing the gross sales proceeds by all selling expenses (including any VAT or sales tax related to the sale).

Please click this link if you are unsure which foreign taxes are eligible for the Foreign Tax Credit - IRS - Foreign Taxes that Qualify for the Foreign Tax Credit

Please note that if this foreign property was considered your primary residence, then you do not need to enter the sale of your foreign primary residence if:

• You never used your primary residence as a rental or took home office deduction
• You have a loss on the sale of your home (Personal capital losses are not reported on your tax return)
• You did not receive a Form 1099-S and
• You meet the home gain exclusion (see below)

You can take the gain exclusion as long as you considered the home your "primary residence" for 2 of the last 5 years. If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income. You may qualify to exclude up to $500,000 of that gain if you file a joint return with your spouse. See  Sale of Your Home for more information on the exclusion.

Sale of a Second or Investment Home -

To enter this transaction in TurboTax, log into your tax return (for TurboTax Online sign-in, click Here and click on "Take me to my return") type "investment sales" in the search bar then select "jump to investment sales". TurboTax will guide you in entering this information (see step 6 below)  

Alternatively, to enter this transaction in TurboTax Online or Desktop, please follow these steps:

1. Once you are in your tax return, click on the “Federal Taxes” tab
2. Next click on “Wages & Income”
3. Next click on “Add more income” (then "See list of all income")
4. Scroll down the screen until to come to the section “Investment Income”
5. Choose “Stocks, Mutual Funds, Bonds, Other” and select “start’ (or “update” is you have already worked on this section)
6. The first screen will ask if you sold any investments during the current tax year (This includes any sale of real property held as an investment property so answer “yes” to this question)
7. Since you did not receive a 1099-B, answer “no” to the 1099-B question
8. Choose type of investment you sold - select Second Home (or everything else if investment home)
9. Some basic information:
1. Description –  Usually the address of the property sold
2. Net Proceeds – Net proceeds from the sale  (Reduce gross sales price by all selling expenses including commissions, VAT, foreign sales tax, etc.)
3. Date Sold – Date you sold the property
10. Tell us how you acquired the property - purchased
11. Any business or rental use? - if no, then select personal use only (Please note, if personal use only, you will not be able to deduct the capital loss since no capital loss is allowed for a personal use capital asset.)
12. Some Basis information
1. Date Acquired
2. Original cost basis
3. Cost of improvements

Although the transaction needs to be reported in USD, the Internal Revenue Service has no official exchange rate. In general, use the exchange rate prevailing (i.e., the spot rate) when the property transactions (the original purchase, capital improvements (if any) and the sale) took place. Please refer to the following IRS links for more information about Foreign Currency and Currency Exchange Rates and Yearly Average Currency Exchange Rates.

If your spouse paid foreign taxes on the this transaction, he will be allowed an offset for these foreign taxes on his US tax return.  If he take a foreign tax credit, his US tax liability will be reduced by the amount of taxes that he would have paid if the transaction took place in the US (see this link Claim Foreign Tax Credit). Turbotax - Claiming Foreign Tax Credits