Foreign Tax Credit in USA on Long Term Capital Gain earned in India from Indian Stocks.

[monikagoel]

Hello. Me and my husband file our joint returns (MFJ) and have taxable income of USD 83K in Tax Year 2024. We also have a long term capital gain in India around USD 32K from India domestic company stock, taxable @ 10% in India (so will pay USD 3200 as tax in India). I believe that Tax in USA will be calculated as (10% till first 23200, 12% from 23201 till 83K) and for Capital gains of 32K Tax will be 0 % till (94050 - 83000) =first11050 and rest 20950 will be taxed at 15%).

Tax till 83K = 10% of 23200 + 12% of 59800 = 2320 + 7176 = USD 9496

Tax for 32K LTCG from India = 15% of 20950 = USD 3142

I have below queries on Foreign Tax Credit-:

(1) Will we get a Dollar to Dollar credit in US returns for USD 3200 or only till USD 3142?

(2) Will we be able to declare 100% or part of the Cap gain on form 1116, Sch.D and on f1040.

(3) Does above Tax calculation looks good?

(4) Can there be any additional taxes in US as calculated above?

[pk]

@monikagoel , Namaste Monika ji.

 based on your post and the questions articulated :

  (a)  I am assuming

                 1.   that any dividends earned on these stocks have been recognized  ( for US purposes ) even they were re-invested.

                  2.  that  your "taxable income" is post  all the deductions allowable  and not gross 

(b)   The taxes paid to India  ( i.e. your  LTCG  US$  3142 ) generally will be recognized  dollar for dollar.  But this is different from the allowable amount  for the current tax year.  The  unallowed portion of       Foreign Tax ( FT ) is available   for carry back  or carry forward.  TurboTax will do this for you.

(c)   While the Tax treat between US and India requires  elimination/ reduction of double taxation,   the way US  achieves  this   is , by allowing a non-refundable  Foreign Tax  Credit  ( allowable  FTC )   that  is  an amount  that is lesser of the actual amount paid or  an allocated US tax on the  doubly taxed income.  Thus  what you are allowed  at most is  zero US tax on the Foreign Source Income.

Since TurboTax will do all the computations for you, all you have to  do is make sure that you entered the proper numbers.   Note  that  your basis in the stocks  is based on dollar of the day at the time of purchase.

Does this make sense  or  is this an exercise in confusing you more  ( lol ) ?

Is there more I can do for you ?

Namaste ji

pk