WE sold our summer cottage that was also rented. the property is located in Canada

[Carl]

You've made a comment, but no question. Are you asking how to report this sale? If the last occupant to vacate the property prior to the sale was a rental tenant, the below guidance applies. It does not matter that it was a foreign rental property.

Reporting the Sale of Rental Property

If you qualify for the "lived in 2 of last 5 years" capital gains exclusion, then when prompted you WILL indicate that this sale DOES INCLUDE the sale of your main home. For AD MIL personnel who don't qualify because of PCS orders, select this option anyway, because you "MIGHT" qualify for at last a partial exclusion.

Start working through Rental & Royalty Income (SCH E) "AS IF" you did not sell the property. One of the screens near the start will have a selection on it for "I sold or otherwise disposed of this property in  2019". Select it. After you select the "I sold or otherwise disposed of this property in 2019" you continue working it through "as if" you still own it. When you come to the summary screen you will enter all of your rental income and expenses, even it it's zero. Then you MUST work through the "Sale of Assets/Depreciation" section. You must work through each individual asset one at a time to report its disposition (in your case, all your rental assets were sold).

Understand that if more than the property itself is listed in your assets list, then you need to allocate your sales price across all of your assets.  You will only allocate the structure sales price; you will NOT allocate the land sales price, since the land is not a depreciable asset.  Then if you sold this rental at a gain, you must show a gain on all assets, even if that gain is $1. Likewise, if you sold at a loss then you must show a loss on all assets, even if that loss is $1

Basically, when working through an asset you select the option for "I stopped using this asset in 2019" and go from there. Note that you MUST do this for EACH AND EVERY asset listed.

When you finish working through everything listed in the assets section, if you ever at any time you owned this rental you claimed vehicle expenses, then you must also work through the vehicle section and show the disposition of the vehicle. Most likely, your vehicle disposition will be "removed for personal use", as I seriously doubt you sold your vehicle as a part of this rental sale.

[nanjeff]

Thank you for responding,

I apologize for not explaining myself better. My wife inherited a plot of land many years ago. Located in P.E.I. Canada. Back in 2008, we built on the land a Cottage which we used as a "summer cottage" even though we only stayed 2 weeks a year, we did advertise that it was available for rental and had very limited success.

Having said that, jump to 2019 and My wife and I decided it was time to sell. In addition to the normal cost of selling, we also had to pay the Canadian government $8,435.21CAD. The net amount received (after costs and tax) totaled $108,064.00USD (currency conversion based on using OANDA FX rates on the date of sale 9/25/2019). Should I be looking for a foreign tax credit for the amount I paid the Canadian version of the IRS? And, is there any other things I should be considering to reduce the US capital gains tax. Thank you in advance for your assistance.

[SusanY1]

Yes, you should be entering the tax paid to Canada on the sale for a credit.  In TurboTax, you will find this under "Estimates and other taxes paid in the Deductions & Credits section of the program.

You will need to re-enter the amount of the gain in this section as the "foreign income" to associate the tax paid with the income since TurboTax won't have the data from a prior entry.  This will not result in the duplication of the income on your tax return.