Foreign property sale 1116 tax credit deduction

[nchank]

I have long term foreign property sale that goes into capital gains in schedule D, and foreign tax credit for this capital gain that needs to be done in 1116. There are no other losses.

Are there any deductions on this capital gains that needs to be calclulated to be put into 1116? 

[pk]

@nchank 

(a) which country was your LT asset in ?   There may be  treaty considerations.

(b) Should one assume that you are a US person ( citizen/GreenCard / Resident for tax purposes )?  And you current tax home is US ( if you are not a citizen ).

(c) How did you acquire the prop?  How was it used during acquisition and disposition?

(d) Has the foreign tax levied by the  local taxing authority finalized  or is it still a case of  "taxes held at source" -- TDS ?

Generally, for US purposes,  form 1116  only considers  the US gain as the doubly taxed  foreign source income. There is rarely ( unless treaty articles intervene) any adjustments to this).  The limiting ratio is based on this foreign source income.  Note that while ( and under Double taxation article ) US recognizes the full amount of foreign taxes paid/ accrued, the  allowable credit is the lesser of  actual foreign taxes paid  and that allocated US taxes on the same foreign source income.

I will circle back once I hear from you ?

[nchank]

1. U.S. citizen, 

2. India - land plot sales.

3. Property aquired as gift, held as investment.

3. Tax witheld after sale - I am guessing TDS.

I also had other gains :

1. India bank deposit interest , and TDS held on that interest

2. India Rental Income and TDS held on that income

So in form 1116 for the following lines
Part I

Line 1a - I included here Total of Land Sale price + Rental gross Income + Bank interest

Line 2 - I included the Total of Land Cost price + Rental expenses

In Par II
I put in Rental  + Land + Interest Taxes withheld

Then I let TurboTax calculate the rest. 

Earlier years, I had used a tax attorney, and he had claimed similar land sale capital gain as capital gain distribution, and hence had a capital gain distribution deduction. Turbo tax did not do this.
1116 and 514 publications are pretty confusing,

[pk]

@nchank  based  on what you have said for the form 1116 -- you have major errors.   

As I see it  and for the tax year 2025 US, 1040

(a)  Interest earnings are entered just like  domestic interest -- include the bank / financial institution/ person name etc. and the amount of interest earned during 2025 ---- Note that you can ONLY use the US  tax calendar. Thus  you have to allocate the earnings if there was a change in interest  rate between the two years.

(b)  For the land sale  you have to use Schedule-D --- your basis is the same as that of the donor at the time of gifting and the sales proceeds  is  Sales Price LESS any sales expenses such as commission, transfer tax etc. i.e. expenses that are attributable to sales effort/transaction.   Note the Gain shown on Schedule-D as this is foreign source income on the immovable property alienation.

(c) Rental income is reported on Schedule-E.  This schedule recognizes the rental income, all US tax allowable expenses and depreciation. The net income shown on  Schedule-E is your foreign source Rental income.

Now , when you go to form 1116,   Part I, line 1a ---  label in the incomes and amounts in the comment area and then under col.A  ( Country India ) enter the total amount of foreign source income ( this is the sum mentioned above -- interest + Schedule-D net income + Schedule-E net rental income. Ignore all the rest of Part I

Part II -- here enter the  allocated Indian taxes   on interest,  rents and "other" ( in your case tax on capital gain  per Indian ITR ).  Note here that TDS usage always implies a risk -- if the final figure  is different  ( i.e. when the ITR is finalized ) you have to go back and file an amended return to recognize  the new situation.  Also note that you may have to allocate the taxes  on items that  go across  calendar year.       An example :

Rental income -- 

Jan 2022 thru  Dec 2022  @ 1000/- per month ;

Jan 2023 thru Dec 2023 @ 1000 /- per month ;

Jan 2024 thru Dec 2024 @ 1200/- per month. 

Jan 2025 thru Dec 2025 @ 1500/- per month

 For Indian purposes -- 

22/23 rental income is  12,000 and tax is 1200/-;   

23/24  rental income --- 9000 +3600=12,600 and  tax  is 1400/-. 

24/25 rental income --- 10,800 + 4500 = 15300 and tax is  1600/-

This would mean that for US purposes  and  for 1116 for 2024 ---

rental income -- for 2024 --- 14,400 -- taxes paid to India  -- 3 months of 2023/2024 rate  + 9 months 24/25 rate--->  350 + 1200=1550.

Now , does this make sense ?

Is there more I can do for you ?

Namaste ji

pk

[nchank]

Thanks for the detailed answer. I always wait for my cpa to complete the india taxation as they are in a Apr-Mar time frame, so that I can map the correct numbers to Jan-Dec and report by oct 15 in U.S.