2022 Foreign Property Sale and Tax Credit

[Zunka72]

In 2022, I sold an investment real estate property in India.  I paid 21% Capital Gains Tax and had to file income tax in India. 

In TurboTax, I entered the sale details in the "Investment Income" section.   Date acquired, cost basis, date sold and sales proceeds.

Where do I enter information about capital gains tax paid in India to get credit for it in my US Tax Return? 

[JohnW152 · Accepted solution]

Please see the TurboTax Help article Where do I enter the foreign tax credit (Form 1116) or deduction? for entry guidance. 

You'll have the option to claim a credit or a deduction.  In most cases, taking the credit works out better than the deduction. TurboTax will help you decide which one's best for you.

[Zunka72]

Thank you!

[Zunka72]

JohnW152

The solution you directed me is only for Foreign Tax that is tied to  dividend and/or interest income.  TuboTax prompts you to select a 1099-DIV or 1099-INT.  Neither is applicable when you sell property. There is no option to bypass or skip that step.

How do I claim credit for foreign taxes that are NOT tied to dividends?

[rogge1722]

The following is from TY2020.  For TY2022, use the latest publications available for the instructions.

Here is the procedure to obtain the foreign tax credit for foreign taxes paid on foreign capital gains/losses.

It is assumed that the reporting of all income including foreign capital gains/losses for U.S. tax purposes has been completed and the next step is to obtain foreign tax credit for foreign taxes paid using form 1116.

Some preliminary work has to be completed. Download the “2020 Instructions for Form 1116” and “Pub 514”.

Open the f1116 instructions and go to page 9. Under the heading “Adjustments to foreign capital gains and losses,” you will be using either worksheet A or B or the worksheet in Pub 514. The instructions will guide you to determine which worksheet to use. Whichever worksheet is used, after completion, you will have the amount to insert into f1116 line 1a if there is a gain or line 5 if there is a loss.

Next go to the foreign tax credit interview. Herein is a screen by screen presentation of a simplified scenario whereby the only income for foreign tax credit is foreign capital gains or losses.

1. Foreign Tax Credit
       Yes
2. Before We Begin
      Yes
3. Foreign Taxes
      Continue
4. Tell Us About Your Foreign Taxes
      Continue
5. Foreign Taxes
    Continue
6. Do You Want a Deduction or Credit?
     Credit
7. Reporting Foreign Taxes Paid
    Continue
8. No Other Income or Expenses
    No
9. Completing Forms 1116
       Continue
10. Foreign Tax Credit Worksheet
     Continue
11. Choose the Income Type
     Make the selection then Continue
12. Country Summary
     Add a country.
13. Country Name
     Select from the list
14. Other Gross Income-Country
     If there is a gain from the worksheet:
     In the description, enter “Capital Gain”
     Enter the amount from the worksheet.
15. Definitely Related Expenses
      Enter any applicable amount.
16. Foreign Losses
     If you had a net foreign loss from the worksheet,
     enter it here.
17. Foreign Taxes Paid
     Enter the amount
18. Country Summary
    Done
19. Any Foreign Source Qualified Dividends or Long Term Capital Gains?
     Here, Long Term Cap. Gains refers only to capital gain distributions
    from a 1099-DIv.
Continue thru the remaining screens until finished.

[Zunka72]

I read the Instructions for Form 1116 and briefly Pub 514. Found the instructions to be much clearer.

In TurboTax 2022 Premier there is either a defect (bug) or there is an update required. 

You cannot enter Foreign Tax Credit for "Passive Income category" (which is real estate sale) until you enter at least one Foreign Tax Credit for 1099-DIV.    You can then go back and delete the foreign tax credit for 1099-DIV.   

After you enter one 1099-DIV Foreign Tax Credit, it gives you all the prompts to complete Form 1116 for claiming tax credit for property sale.

I am hoping TurboTax fixes this.

[BrittanyS]

You can claim the foreign tax credit without a 1099-DIV or 1099-INT by following these steps:

1. Make sure the sale of the property has been entered into the income section of the return
2. Click Credits & Deductions
3. Under Estimates and Other Taxes Paid, click Start Next to Foreign Taxes Paid
4. Click Yes for "Did you pay foreign taxes in 2022 or have credits to use from a prior year?"
5. Click Yes for "Have you already reported all of your foreign income and, if applicable, foreign taxes paid on interest, dividends or Schedule k-1?"
6.  Click Continue
7. Click Take a Credit
8. Click Continue
9. Click designation for "First year you are Eligible?"
10. Choose Simplified or other calculation
11. If you do not have interest or dividend income click No for "No Other Income or Expenses:
12. Click Continue
13. Click Continue
14. Click Passive Income under "Choose the Income Type."
15. Add Country Summary
16. Add expenses and an explanation of expenses
17. Make sure you select, "No, I have foreign taxes paid on rental, royalty, or other income."
18. Enter Foreign Taxes on Other Income
19. Finish the remainder of the interview questions

@Zunka72 

[Zunka72]

Thank you.