I sold a real estate property in South Korea last year, and I'm working on the US tax return. I have a question regarding CA state tax. I heard that if I was living in California at the time of the sale, I'm in the double taxation situation and I need to pay the tax for the sale in CA state tax. But if I was living in Arizona, for example, there's no double taxation for the state tax. I think this is related to US – Korea Tax Treaty, and I'm trying to confirm if TurboTax understands that it should calculate differently state by state.
I'm currently seeing the calculated number for both Federal and CA state in TurboTax, but really curious if the number is correct and if it's the safe assumption that TurboTax is smart enough to understand these – US - Korea Tax Treaty and some states fall into double taxation and some states don't.
Thank you in advance.
Both Arizona and California tax residents on income earned everywhere so the sale of foreign property will be taxable to an AZ or CA resident.
You do not have a choice where to pay tax. If you were an AZ resident at the time of sale, the sale is taxable to AZ and vice versa.
AZ allows a subtraction 25% (.25) of any net long-term capital gain included in your federal adjusted gross income that is derived from an investment in an asset acquired after December 31, 2011.
AZ also allows a credit for tax paid to another state or country so you can claim a credit for tax paid to South Korea on the sale of your property.
Arizona residents are allowed a credit against Arizona income taxes for net income taxes imposed by and paid to another state or country if the following apply:
- The income taxed in Arizona is derived from sources within another state or country. This income is subject to a net income tax in the other state or country regardless of your residence.
- The other state or country does not allow Arizona residents a credit for taxes imposed on income subject to tax in both Arizona and the other state or country.
Thank you, @ErnieS0 , for your detailed response.
I've been living in California only, and Arizona was just an example of state that they say no double taxation happens for selling the real estate in Korea.
Regardless, the main point of my question was if TurboTax (version: Self-Employed Online) is good enough to handle those things given the fact that it should understand tax treaty b/w US and a foreign country and the difference in handling the tax per state. I assumed yes, but would like to confirm.
If TurboTax is not good enough, I need to find a CPA asap. Thank you.
Hi @gl09602 TurboTax Self-Employed can handle the sale of foreign property and multi-state returns. TurboTax does not support Form 8833, Treaty-Based Return Position Disclosure, though I don't think it is applicable in your situation. You can complete Form 8833 using the IRS fill-in forms and add the appropriate notations in TurboTax and file by mail.
TurboTax can prepare and file your tax return for you through an upgrade called full service.