Land Sale in India and foreign tax credit

[Achar1992]

I sold personal land in India in 2022 and have a Long Term capital gain for which I have paid approximately 20% in taxes there. Even with online help, we were unable to locate where to get a credit for taxes here. I was told I need to buy the "desktop version" of TT as online version does not have form 8949 (We did use tools and looked up and the form was missing). In addition to this, I also have Interest and dividend income from India. I use Turbo Tax online self employed. If someone can guide me on getting credit without downloading a desktop version, please let me know. Of course, I have filed for extension as I did not want to rush through the process.

[DaveF1006]

You will need to claim a Foreign Tax Credit by;

1. Go to federal>deductions and credits>estimate and other taxes paid
2. Foreign taxes >start
3. When you reach the screen Do You Want the Deduction or the Credit? select the option you prefer for your situation
4. Continue past the worksheet
5. Next select passive income
6. Next in the Country Summary Screen add India.
7. Next screen will ask you for gross income, enter the gross amount of your sale..
8. Leave the expenses as this may limit your Foreign Tax Credit.
9. Now enter the amount of Foreign losses if you have any.
10. Next screen will have you report the amount Foreign Taxes you paid on the sale and the date paid.
11. If there is any foreign source dividends or long term capital gains on the sale, report that in the sections of your return entitled Any foreign source qualified dividends or long term capital gains.
12. Scroll through the rest of the questions until you are done with this section.

 As far as not having a 8949 form, it depends on how you reported the sale.  The best way to report and generate a 8949 is to report it like an investment sale. 

• Go to federal>wages and income>
• Investment income>stocks, mutual Funds>Bonds>Other

[Achar1992]

Thank you. But I have done this and it takes me to the question- "Did you pay taxes on income you made while working outside the U.S.?" The moment I say no, it just kicks me out of there. The only tax credit I am getting is for the other foreign interest and dividend income, but not for land sale. Again to clarify, this is on the Turbo Tax "Online" version. In the "tools" section (After I complete the Land sale in the investment sales section), I don't even see a 8949 form to select. I was told that Online version does not even support this form.

[ThomasM125]

Form 8949 will be populated in the online version of TurboTax when you report the sale of an investment. You designate your foreign income as General category income. 

Then, enter a description and the income amount:

And then the foreign taxes paid:

[Achar1992]

Thank you. That is how I started with entering the sale in Investment sale section. But when I get to foreign taxes, it is just a mess asking about carryover, AMT and many things I have not encountered before.

With online help etc, my entire tax form is now a mess. Two people from TT online help tried to help, one said you need desktop version and other just hung up on me after transferring me to automated system asking me to pay $90 more for a CPA to assist me. This has been by far my worst night mare this year. I am hoping to get a resolution before my October when it is my absolute deadline to file. 

[vkazhipu]

I made another post on similar issue - https://ttlc.intuit.com/community/taxes/discussion/for[product key removed]t-on-land-sale-in-india/0...

I already have some foreign taxes paid, automatically added when I imported 1099 from financial companies. 

1099-DIV

For Land sale made in foreign countries, do we need to report income/expenses in Form 1116 and also in form 8949 capital gains. Would that be double counting?

Here was the scenario

Before starting process I had taxes due - 3138

I entered foreign tax paid of 8157 USD on foreign income 11728 (after expenses and dollar conversion adjustments). 

My taxes due is now 723. I got a credit of only 2415 USD even though foreign tax paid is 8157 USD. @DaveF1006 

[DaveF1006]

No.  Reporting this is an investment sale to appear on the 8949, and then reporting it again for Form 1116 purposes is not double-counting income. Reporting it again in Form 1116 is informational for computing the foreign tax credit but does not get reported again in your return.

Now, you would like to know the reason why you weren't given full foreign tax credit. According to the IRS, Your foreign tax credit cannot be more than your total U.S. tax liability multiplied by a fraction. The numerator of the fraction is your taxable income from sources outside the United States. The denominator is your total taxable income from U.S. and foreign sources. Here is an example on how this works.

If your tax liability on Line 24 of your 1040 is $5000, your foreign income is $11,728, and your total income, foreign and US income, is $50,000. The foreign tax that can be claimed for this year is ($5000)($11,728/$50,000)=$1173. This is the maximum amount of credit that can be claimed this year. Any excess foreign tax credit can either be carried back to a previous year or carried forward for 10 years to offset any past or future foreign tax credit paid on foreign income. So if you had a $5000 credit, $1173 will be credited this year while $3827 will be a carryback or carryforward, or both.

In your case, you received $2415 and $5742 will be a carryover, carryback, or both. Now to report your investment sale, here is how to report if you haven't already.

1. open your return.
2. Go to federal
3. wages and income
4. Scroll down the screen until to come to the section “Investment Income”
5. Choose “Stocks, Mutual Funds, Bonds, Other” and select “start’  
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 everything else
9. What type of investment other
10. How did you receive the investment. Indicate you purchased it.
11. On what did did you receive this investment.  The date of purchase of the land.
12. Some basic information:
    1. Description –  Usually the address of the property sold
    2. Sales Proceeds –  The amount you received for the sale minus settlement expenses when you sold the home)
    3. Date Sold – Date you sold the property
    4. Cost or other basis  (This is where you put the purchase price of the land plus the settlement expenses when you bought the home plus any improvements to the property.)

I am not going to tell you how to enter the Foreign Tax Credit Section since it looks like you have already determined the amount.   Just remember to record the gross amount of the sale in this section to accurately determine the credit.

Just remember, any gross amounts reported in your Foreign Tax Credit section does not get added again as income.  The only income reported on your return is reported as an investment sale.

Foreign Tax Credit

@vkazhipu 

[DaveF1006]

No.  Reporting this is an investment sale to appear on the 8949, and then reporting it again for Form 1116 purposes is not double-counting income. Reporting it again in Form 1116 is informational for computing the foreign tax credit but does not get reported again in your return.

Now, you would like to know the reason why you weren't given full foreign tax credit. According to the IRS, Your foreign tax credit cannot be more than your total U.S. tax liability multiplied by a fraction. The numerator of the fraction is your taxable income from sources outside the United States. The denominator is your total taxable income from U.S. and foreign sources. Here is an example on how this works.

If your tax liability on Line 24 of your 1040 is $5000, your foreign income is $11,728, and your total income, foreign and US income, is $50,000. The foreign tax that can be claimed for this year is ($5000)($11,728/$50,000)=$1173. This is the maximum amount of credit that can be claimed this year. Any excess foreign tax credit can either be carried back to a previous year or carried forward for 10 years to offset any past or future foreign tax credit paid on foreign income. So if you had a $5000 credit, $1173 will be credited this year while $3827 will be a carryback or carryforward, or both.

In your case, you received $2415 and $5742 will be a carryover, carryback, or both. Now to report your investment sale, here is how to report if you haven't already.

1. open your return.
2. Go to federal
3. wages and income
4. Scroll down the screen until to come to the section “Investment Income”
5. Choose “Stocks, Mutual Funds, Bonds, Other” and select “start’  
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 everything else
9. What type of investment other
10. How did you receive the investment. Indicate you purchased it.
11. On what did did you receive this investment.  The date of purchase of the land.
12. Some basic information:
    1. Description –  Usually the address of the property sold
    2. Sales Proceeds –  The amount you received for the sale minus settlement expenses when you sold the home)
    3. Date Sold – Date you sold the property
    4. Cost or other basis  (This is where you put the purchase price of the land plus the settlement expenses when you bought the home plus any improvements to the property.)

I am not going to tell you how to enter the Foreign Tax Credit Section since it looks like you have already determined the amount.   Just remember to record the gross amount of the sale in this section to accurately determine the credit.

Just remember, any gross amounts reported in your Foreign Tax Credit section does not get added again as income.  The only income reported on your return is reported as an investment sale.

[vkazhipu]

Thanks @DaveF1006 . Awesome clear answer.

One of the turbotax help mentioned that tax paid on land sale can be claimed as expense (along with any brokerage commission). Is that a path I can take to keep this simple? Essentially not taking foreign tax credit.

[DaveF1006]

No. Formally, foreign property taxes were deductible but are no longer allowed because of the Tax Cuts and Jobs Act of 2018. If you include these as an expense of sale, then these are not allowed either. Thus, my advice is not to include.

@vkazhipu 

[vkazhipu]

@DaveF1006 Will enter as foreign tax credit. Hope I still can e-file this. Also gross income they ask in 1116...Is that net amount of land sale or profit I made after all expenses and cost basis?

[DaveF1006]

Yes. You should be able to electronically file. The gross income is the amount you received for the sale of the land either by check or bank deposit.