Foreign Tax Credit on sale of home in India

[anup1993]

I sold my apartment in India in 2023. I have paid 24% tax on the sale price of the apartment at the time of sale. In the US I have to pay 15-20% tax. How do I claim foreign tax credit using Turbo Tax Software 2023.

Further, is capital gain tax calculated after deducting $89,250 Married filing jointly (since $0 - $89,250 is at 0%)

Thanks

[AmyC]

1. Form 1116 needs to be filled out to receive credit for taxes paid to qualified foreign countries, such as India. For the steps, here is a post with two of my answers with pictures to get your to the forms and through the process.  See also, Where do I enter the foreign tax credit (Form 1116) or deduction?

2. Yes, The program will calculate the gains after the exclusion you mentioned. The program has many worksheets in the background doing all the work for you. In your forms, it will show the tax is from the worksheet  "Qual Div/ Cap Gn" which is used to calculate the tax.  

If the apartment you sold was a second home, it will appear on sch D and form 8949.

Here is a copy of the tax calculation from one of my fake returns for a single that sold a second home with a $40,000 gain:   

[anup1993]

Thanks for the trouble, Amy. I appreciate it.

Can you advise how to complete Sch D, Form 8489 and Form 1116 (FTC) in the Turbo Tax Software 2023 for sale of 2nd home in India. Appreciate screen shots, if possible.

Just as an example for a Long Term  Capital Gain:

Basis Price of Home: $100,000

Sale Price:     $200,000

Tax Paid in India: $48,000 (24% of Sale price). In India tax is paid on the sale price and not on Capital Gain.

Since Capital Gain is taxed at a maximum 20% in the USA, am I right in assuming that I do not have to pay any tax on the capital gain for the sale of home, since I have already paid 24% in India. Off course,  assuming there are no other incomes.

Thanks in advance

[AmyC · Accepted solution]

A.  Sale of second home, see Where do I enter the sale of a second home, an inherited home, or land on my 2023 taxes?  Here are my steps:

1.Personal income to investment income to stock, bonds, other

2. Select Other, continue

3. Name the sale: Second home, continue

4. Select the drop down boxes and enter your answers.

5. Enter the foreign country or more of the address

6. Enter purchase and sales dates

7. Enter sales price

8. Enter basis - what you paid plus improvements

9. continue

10. Enter sales expenses or select none

11. Continiue

B. Foreign tax credit is form 1116 and most people choose a credit over a deduction but you can try both ways. See Where do I enter the foreign tax credit (Form 1116) or deduction? 

To begin, go to deductions, Estimates and Other Taxes and select Foreign Tax

Follow these steps:

1. Return to the Foreign Tax Credit and select
2. Yes to foreign income
3. Before We Begin, Yes
4. Foreign taxes, Continue
5. Select none of these apply, continue
6. continue
7. Take a credit, continue
8. reporting foreign tax, continue
9. No other income or expenses? Select No
10. Complete form 1116, continue
11. Worksheet, continue
12. Select Passive income for a rental or second home
13. continue
14. 
15. Select blue Add a country
16. 
17. Select India
18. continue
19. enter the description
20. enter the USD for the India income
21. continue
22. enter any related expenses
23. continue
24. enter explanation of how you calculated expenses
25. continue
26. enter foreign losses related to India as a positive amount
27. continue
28. Foreign Taxes Paid, select No -
29. enter foreign taxes
30. enter date paid
31. continue
32. 
33. done

C. All income is reported and calculated based on US tax law with a credit given against your tax liability for the taxes paid to India. The amount you paid India may not match up with the US tax system for the credit.

You have got this and we are here to help!

[anup1993]

Thanks Amy. I really appreciate your help.

Will come back if there are more questions.

Thanks

[UserRR]

Hello, 

Thanks for the detailed instructions including screenshots. I now have to do this sale of a home in India in my 2024 tax return. 

could you please confirm the steps in item B in your instruction for taking foreign tax credit?  I have chosen “taking a credit”. But, I see something about dividend income and selections for choosing countries. I cannot skip this and go to form 1116.

Thanks.

Edit: In the dividend income screen, i choose one country (India) but decided to skip through the rest to go to form 1116 inputs.  Seems like the latest turbo tax version has updated the step-by-step views.