Are you a U.S. Citizen or green card holder? What kind of property did you sell in Mexico? Was it your primary residence? Farmland? A 2nd home? Raw land? Commercial property? Some other kind of investment property? You need to provide a lot more details for the reader to work with here. But basically, if a U.S. Citizen or green card holder, you are required to report all income from all sources world wide, regardless of where that income came from or how you obtained it.
Hello, I'm a US citizen by naturalization (I was born in Mexico), the property is just raw land and a church is going to buy it. They reside in the US but also have Mexican roots and the payment will be in US dollars with US bank check that I plan to deposit in my US bank account. Thanks for your help.
Then you'll report the sale in the Investments section under the Personal Income tab. Specifically, in Stocks, Bonds, Mutual Funds, Other. When asked if you have a 1099-B, select NO and press on.
You will also report the information about that income tax you paid to Mexico for the "Foreign Tax Credit".
Ah yes, I totally forgot about the foreign taxes paid. You'll deal with that completely separate from your reporting of the sale, under the Deductions & Credits tab in the Estimates and Other Taxes Paid section of the program.
Another question regarding this topic, let's say I sold that property in $130,000, I payed the Taxes in Mexico for this sell in the amount of $13,000. Once I declare this in my Tax form, approximate, how much taxes do I need to also pay in the US for this sell? Thanks for your help, it is very much appreciated.
You really need to work it through the program and see for yourself. There's just to many variables to deal with, and some of those variables may be to personal in nature for your to willingly share in this public forum.
I'm not sure, but I "think" the taxcaster might be able to give you a rough estimate. Just keep in mind that it's *rough*. <a rel="nofollow" target="_blank" href="https://turbotax.intuit.com/tax-tools/calculators/taxcaster/">https://turbotax.intuit.com/tax-tools/calculators/taxcaster/</a>
I want to understand how this works, as I really don't want to imagine that I would need to pay a lot of taxes in Mexico and then much more in the US for this sell.
If you are a US resident or citizen, you report and pay tax on all your world-wide income. If you paid foreign tax on the same income, you get an offsetting credit or deduction, but it may not completely offset the impact of the double taxes.
However, you don't owe US tax on the proceeds of the sale, you owe it on the capital gains. Capital gains is the difference between your cost basis and the selling price. Cost basis is what you paid for the property. You can increase your cost basis by certain costs associated with the original purchase (such as inspections, transfer taxes and attorney fees); you also increase your cost basis by any permanent improvements you paid for to the land; you also increase your cost basis by certain selling expenses, such as transfer taxes, inspections, surveys, and real estate commission. The difference between the adjusted cost and your selling price is your gain.
For example, if you purchased the land for $50,000 (US$ converted value on the day of the purchase), and sold it for $130,000, and paid $5000 in selling expenses, then your capital gain is $75,000, and that is what you are taxed on, not the sales price or the amount of cash you get after paying off a mortgage.
You figure all your expenses based on the US$ value at the day's conversion rate when you paid the expenses.
If you inherited the property, then your cost basis is the fair market value on the date the previous owner died. You may be able to get a real estate agent to give you an estimate or appraisal that is back-dated to the correct date, which would be based on historical prices of similar property from around that time.
The capital gains tax rate is 15% for most taxpayers. Zero percent for some lower income taxpayers, and 20% for a few very high income taxpayers. The foreign tax you paid will at least partly offset the capital gains tax.
In the example you gave me, for the capital gain, are the Taxes payed in Mexico part of the selling expenses? Or the taxes payed in Mexico goes in another section in my tax form? I appreciate your help.
The taxes paid in MX are not selling expenses that adjust your gains. They go on a separate form. I'm not sure where that form is, but if you go to the Search box and type "foreign tax credit" , then select "Jump to" in the results, that should take you to the place in the program to report the foreign taxes you paid.
The credit is described here, by the way.
<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p514.pdf">https://www.irs.gov/pub/irs-pdf/p514.pdf</a>
The kind of taxes that do adjust your gains would be transaction taxes, not income taxes. For example, in the county where I live in New York state, the seller is charged 0.5% transfer tax and the buyer is charged 0.75% transfer tax that goes to the county, not the state or IRS. There is also a $50 fee to record a new deed and mortgage, and a mortgage tax of 0.25% of the mortgage (if there is a mortgage) that goes to the county as well. Those are adjustments to the capital gains because they are considered additions to the purchase price or reductions in the sales price.