Foreign Tax Credit - Other Gross Income

[vk29]

Hello

I inherited property in India and there, capital gain is calculated from original price. In India, I have capital gain of $50,000 calculated by converting Rs into $ with the exchange rate as of sale date.

In US, capital gain is calculated from the price you inherited the property. So that amount will be $10,000. 

My question is, while entering Foreign Tax Credit in TurboTax, Other Gross Income - Should I enter 50,000 or 10,000?

And since Capital gain in India was taxed at 20%, should I multiply it by .5405 and enter that amount i Foreign Qualified Dividend and L.T. capital gains?

[DaveF1006]

First of all, if you haven't entered this transaction as an investment sale in Turbo, do so or else your foreign tax credit will not be accurate. To enter, if you haven't done so.

1. Go to federal
2. Wages and income
3. Go to investment income
4. Go to Stocks, Cryptocurrency .......
5. Classify this as other
6. Follow all prompts that follow to determine what your capital gains is on the sale.

Now when you report the Gross income in the Foreign Tax Credit section. You will report what the house sold at. You do not need to make any other calculations on your own as Turbo Tax will do that for you.

[vk29]

I have entered Sale in Wages and income - Proceeds and Fair market Value when previous owner passed away. And that difference is $10,000 which will be my Capital Gain in US from that sale.

But when entering Foreign Tax Credit - Other Gross Income, do I enter 10,000 (Capital Gain per US laws)  or 50,000 (Capital Gains per India laws)

[pk · Accepted solution]

@vk29 ,  having read through your post and reply from my colleague @DaveF1006  ( and agreeing with in general ), I am surprised by  some statements:

(a) India uses an indexed  valuation and thus  the Capital gain amount is generally lower   i.e. the owner's basis  is indexed year over year, in contrast to US basis  (  acquisition cost [plus cost of improvements during the holding period).

(b) For US purposes,   :

                          (1)  your basis  is  stepped up   ( to FMV )  the time of passing of the decedent, if you received  the asset by  inheritance.

                           (2)  you tell TubroTax that you have sold a house  ( under  Personal Income; I will choose what I work on ; then  go down the list of income categories and choose  sale of assets/ business  and follow through with all the questions.  Turbo  will ask for   whether it is your home ( choose not my home ), basis ( FMV at death of the decedent ) etc.

                           (3) then  under  deductions and credits tab, choose Foreign Tax credit  --- this will bring up form 1116, where the  foreign income doubly taxed  is  "gross income from foreign sources"  ) =  your capital gain per US rules) and the foreign taxes you paid.  Category of  foreign income is passive.

Does this make sense ?    Is there more I can do for you ?

Namste ji

pk

[vk29]

Thanks. That helps a lot

[pk]

@vk29 , you are very welcome.

Please if this has answered your query, consider accepting the answer -- this will close the thread.  You would still would be bale to add to it.

Namaste ji

pk

[vk29]

Pk, one more thing

to answer 'How much of the income you reported was qualified dividends or long term capital gain?'

Per 1116 instructions, I must adjust the amount.

In US, I fall under 15% capital gain tax.

In India, tax was 20%.

Do I adjust it by multiplying it by .4054 (for 15%   Capital gain rate)  or .5405 (20% Capital gain rate)