Dear experts,
I sold my flat in India in 2022. The capital gains tax was calculated and the buyer paid the price less the tax deducted at source (TDS). (The buyer pays that directly to the Indian revenue service.)
In my 2022 taxes, do I report the sale as a regular sale with form 8949 and calculate the capital gains. And then also report the TDS as foreign tax credit (to get benefit from the double-taxation treaty between India-US)?
The complication is that in filing the India tax return in 2023 (for the 2022 FY), the house's valuation and indexation is taken into account and there is a lower actual capital gains calculation and I will receive a tax refund in India as a result of this. Does this figure get reported in the US 2023 return, or should I incorporate the correction in the 2022 return itself?
Thank you!
@MS310 , Having read through your situation ( vis-a-vis indexation of basis in India in gain computation ), -- I think I have answered similar before :
For US tax purposes :
(a) you treat the sale of the asset as if the asset was in the USA / domestic and compute your capital gain tax.
(b) in the Deductions & Credit section/tab, you select foreign tax credit
(1) On form 1116 you enter the total foreign sourced income i.e. Asset sales price less sales expenses (including commissions, transfer tax, sales prep etc. etc. --- not the taxes paid to Govt. of India) LESS your Basis ( Original acquisition cost plus cost of improvements ). This should be the same as your gain on Schedule-D or 8949. This the amount that is being doubly taxed.
(2) On form 1116 you enter the total foreign taxes paid ( Collected at source ). Note that this amount should be the final tax amount ( otherwise you have to file an amended return to reconcile with the final amount ) .
Note that your foreign tax credit while recognized US$ for US$, the allowable amount for the tax year is based on a ratio of foreign source income to your world income -- the rest can be carried back one year ( again limited by the same ratio ) and forward till quenched
Does this help or do you need more info on this ? Is there more I can do for ypou ?
Namaste
pk
@MS310 , Having read through your situation ( vis-a-vis indexation of basis in India in gain computation ), -- I think I have answered similar before :
For US tax purposes :
(a) you treat the sale of the asset as if the asset was in the USA / domestic and compute your capital gain tax.
(b) in the Deductions & Credit section/tab, you select foreign tax credit
(1) On form 1116 you enter the total foreign sourced income i.e. Asset sales price less sales expenses (including commissions, transfer tax, sales prep etc. etc. --- not the taxes paid to Govt. of India) LESS your Basis ( Original acquisition cost plus cost of improvements ). This should be the same as your gain on Schedule-D or 8949. This the amount that is being doubly taxed.
(2) On form 1116 you enter the total foreign taxes paid ( Collected at source ). Note that this amount should be the final tax amount ( otherwise you have to file an amended return to reconcile with the final amount ) .
Note that your foreign tax credit while recognized US$ for US$, the allowable amount for the tax year is based on a ratio of foreign source income to your world income -- the rest can be carried back one year ( again limited by the same ratio ) and forward till quenched
Does this help or do you need more info on this ? Is there more I can do for ypou ?
Namaste
pk
Thanks @pk - very helpful explanation!
For some reason, I am unable to navigate to a relevant foreign tax credit entry area through the web interface that will feed into Form 1116. (Only gives me options for mutual funds that are invested abroad and pay foreign taxes.) Any ideas on what may be happening there?
Thx!
@MS310 , I am not familiar with the UI ( user interface ) of the on-line version and therefore am at great disadvantage to help you . Please consider contacting TurboTax support -- they are reputed to quite good at helping with On-line version of the product. Please accept my humble apologies.
pk
@MS310, Iam in the same situation. Can you please let me know how you resolved the issue?
@ylpsads , can you please tell more of what your situation is so I can focus my answer to your facts and circumstances.
I will circle back once I hear from you
pk
@pk Thank you
Did not see an option in "deduction & credits" in Turbotax online to enter foreign tax info for 1116. only option i could pick is dividends from 1099-DIV.
Was able to resolve it by 1) removing 1099-DIV, 2) adding foreign tax first and then 3) added 1099-DIV back.
Hi
I have an exactly similar situation. I too sold a flat in India in Summer 2023. Please can you advise how you addressed your situation that will be of great help for me. I am sure it will help others too.
Thanks
@MS310 wrote:
For some reason, I am unable to navigate to a relevant foreign tax credit entry area through the web interface that will feed into Form 1116.
When you said "the web interface," pk and I both understood that to mean TurboTax Online. But you are working on a U.S. tax return for 2022, to report the sale of the flat and TDS paid in 2022. You cannot prepare a 2022 tax return with TurboTax Online. TurboTax Online is only for the current tax year, which is now 2023. To prepare a 2022 tax return you have to use the CD/Download Desktop TurboTax software for 2022.
To prepare Form 1116 in the CD/Download Desktop TurboTax software, go to Federal Taxes > Deductions & Credits. Scroll down to the section "Estimates and Other Taxes Paid." Click the Start button for Foreign Taxes. In my opinion the user interface in the CD/Download Desktop software is much simpler, clearer, and easier to navigate than TurboTax Online.
@Ramesh Aswathnarayana , will you please tell more about your situation --- this thread is pretty old .
(a) you a US person ( citizen/ GreenCard / Resident for Tax purposes ) sold a property in India -- when ?
(b) did you pay taxes at source ?
(c) when did you sell the prop . ? Did you use the [prop as your main home within the last five years ( from the date of sale) -- 730 days of use and 2 years of ownership ?
(d) Are you single or file married Joint ?
(e) any other info on this sale ? Like how did you acquire the prop ?
I will circle back once I hear from you
pk
I'm as NRI selling home in Star City, Gujarat. I'd like to know if there would be any US tax liability for below transaction?
50% | 50% | ||
| Head of Family | Spouse | Total |
Sales Price | INR 4,500,000.00 | INR 4,500,000.00 | INR 9,000,000.00 |
|
|
|
|
Cost of Purchase (A) | INR 2,648,350.00 | INR 2,648,350.00 | INR 5,296,700.00 |
| |||
Stamp Duty (B) | INR 123,725.00 | INR 123,725.00 | INR 247,450.00 |
Documentation Charges (C) | INR 15,390.00 | INR 15,390.00 | INR 30,780.00 |
Electricity Connection Charges (D) | INR 37,500.00 | INR 37,500.00 | INR 75,000.00 |
Misc Charges Paid (E) | INR 84,750.00 | INR 84,750.00 | INR 169,500.00 |
Purchase Value (Cost of Purchase and A+B+C+D+E) | INR 2,909,715.00 | INR 2,909,715.00 | INR 5,819,430.00 |
Capital Gain (Sales Price - Purchase Value | INR 1,590,285.00 | INR 1,590,285.00 | INR 3,180,570.00 |
Tax Payable (14.30% on Capital Gain | INR 227,410.76 | INR 227,410.76 | INR 454,821.51 |
TDS Deducted (14.30% on Sales Price) | INR 643,500.00 | INR 643,500.00 | INR 1,287,000.00 |
Indian Tax Refund | INR (416,089.25) | INR (416,089.25) | INR (832,178.49) |
@star_personal , while I digest the figures you have posted, can you please answer the following :
(a) when did you acquire the asset --- Is this a case of outright/ private buy ( i.e. where all the funds were paid/deposited at title transfer ) OR from a developer ( where you pay reservation amount before construction starts, and pay the rest as progress amounts or at transfer of title -- beneficial occupancy ) ? Also need dates of payment(s).
I ask because of possible exchange rate differences over the buying period needs to be taken into consideration.
(b) For US purposes do you file as Married Filing Joint ( MFJ) or Married Fling Separate ( MFS ) ?
(c) When did you enter the USA and under what visa ? Has there been any immigration status adjustment(s) and if so to which? Ditto for spouse .
(d) From the date of completion of purchase and till the date of sale, how was the property used ( only personal and/or income--rented and if so from when to when ) ?
(e) Approximate US sourced income for the tax / calendar year ? Should we assume that your world income ( from all sources and all countries ) consists only of the Indian sourced capital gain and US sourced income ?
(f) Any other items one should be aware of ?
I will circle back once I hear from you
Namaste ji
pk
I tried what you advised in your email but under the Estimates and other Credits there is nothing listed for foreign tax credit. I am not sure what to do. Please help
@Smkmi123 , since I don't see anything from you on this thread, I am not sure what the issue you are seeing. Please could you tell me more about your situation.
While I know nothing about the screens / interview for the on-line version, on windows download ( I use Home & Business ) with appropriate product ( while they all have the forms the interview/ step-by-step portion is more encompassing as you go to higher levels. Perhaps the version you are using does not support Foreign Tax credit -- and you may have to move to a higher version. But in my version , under the Deductions & Credits tab, and then selecting " I will choose what I work on", you get a list of all the deductions and credits available. Nera the bottom of this you will find " Foreign Tax Credit".
Please tell me more about your situation as also which product you are using. Note that to be able to get foreign tax credit generally there must be a Tax Treaty between the US and that country in effect.
I will circle back once I hear from you .
I sold my house in India in 2023. I wanted to know where should I enter this sale in turbo tax premier (desktop version) and how to get the foreign tax credit on the TDS for the sale of house
@Smkmi123 , my assumptions for your scenario:
(a) You an US person ( citizen/GreenCard/ Resident for Tax purposes) , having US tax home, filing MFJ
( b) Sold a property in India in 2023, TDS for Indian Tax year 2023/24 ( at 20% 0r 1.3% or ? )
(c) Have US tax return for 2023, did not recognize the disposal of the asset in India.
(d) Now you wish to recognize the disposition / alienation of the asset and claim Foreign Tax Credit based on finalized Indian Tax Return).
The only recourse that you have is to pursue this through amending your US return for the year 2023. To do this
(1) You will need to open your 2023 TurboTax and Open your 2023 return and save it under a different name ( e.g. append -- "As Filed" to the name that TurboTax had assigned originally assigned ), so it is available for future reference.
(2) Tell TurboTax that you wish to amend a return, select the default return for the 2023 -- i.e. not the one you saved in step (1) above.
(3). TurboTax will go through some machinations and then open the return to be amended.
(4). Now go through the Income section and select -- sold home ( here I am assuming that the home that you sold was not ever used as an income property / rental property etc. on which depreciation was allowed/used ).
(5) Answer TT questions regarding the sale -- cost basis ( the price at which you acquired the asset plus any cost of any improvements etc. ); when did you acquire the property and how etc.; sales price ; allowable sales expenses ( commission, transfer tax, repairs/changes done for the purpose of the sale etc.).
(6). TT will sue all these items to compute the gain per US tax laws. And this will then flow on to your form 1040 as capital gain.
(7). Now you have to move to the "Deductions & Credits " Tab. This will open a list of deductions and credits . From here select "Foreign Tax Credit " Select this.
(8). This will now walk you through filling out the form 1116. Here your foreign source income is the "gain" that is was computed form the sale of the property per US rules -- form 1040-line 7. Here you also provide the final Tax that India levied on the sale of the property. TT will compute the allowable Foreign Tax credit for the tax year 2023-- this will show up on Schedule- 3 line 1 and comes from form 1116 line 35.
Note that while all your foreign taxes paid is recognized , the allowable amount for the current tax year is the lesser of US tax levied and actual paid to India on the same foreign source income. The rest of the Tax Credit is banked -- ( one year back or up to 10 year forward ).
Does this help ? Is there more I can do for you ?