I'm using TurboTax Self-Employed Online version. Last year (tax year 2020), I sold a real estate (an apartment unit) in South Korea and I paid the tax in South Korea, and now I'm trying to report the sales information in US tax return using TurboTax and get foreign tax credit, too.
I added the sales information in "Income & Expenses > Investment Sales". After entering the info, when I go there, I see (a) proceeds, (b) cost basis, (c) adjustment, and (d) total gain or loss number. Just to make it an example, let's say
Proceeds: 10000, Cost basis: 6000, Adjustment: -1000, Total gain: 3000
(note that adjustment contains expenses such as real estate brokerage fee)
Now, I'm trying to get Foreign Tax Credit (by using Form 1116 in the background - I can't see the form as I'm using online version). Using 'foreign tax credit' jump link, I went to the interview screens and I see "Other Gross Income - Korea, South" with this description:
Enter descriptions and amounts for any other gross income you received from sources within Korea, South. Do not enter any income already reported on Form 1099-INT, Form 1099-DIV, Form 2555, or Schedules K-1. And below that, there are fields to enter: "Description" and"Amount for Korea, South".
1. In my situation, entering the sales information in "Income & Expenses" was correct? This is the page labeled as "Stocks, Mutual Funds, Bonds, Other" in "Income & Expenses" section.
2. As for "Other Gross Income - country" screen, I don't have any form like 1099-INT, 10990-DIV, Form 2555, or Schedules K-1 for the sale of this foreign property, so is it correct for me to enter the sales information "again" here (even though I entered the sales info in "Income & Expenses" section)?
3. If the answer for #2 is yes, what should be the right number for gross income for this sale, if you use the example numbers I provided above? Should it be "Proceeds minus Cost basis (i.e., 4000)" or "Proceeds minus Cost basis plus adjustment (i.e., 3000), or something else?
Your help would be greatly appreciated. Thank you!
With regard to question #1: From TT's guidance:
"In addition, these events are taxable but are not reported as Investment Sales:
- Sales of property used in a business or rental activity. These sales should be reported in the Business or Rental sections of TurboTax."
With regard to obtaining the foreign tax credit:
Here is the procedure to obtain the foreign tax credit for foreign taxes paid on foreign capital gains.
It is assumed that all income including the reporting of foreign capital gains for U.S. tax purposes has been completed and the next step is to obtain foreign tax credit for foreign taxes paid using form 1116.
Some preliminary work has to be completed. Download the “2020 Instructions for Form 1116” and “Pub 514”.
Open the f1116 instructions and go to page 9. Under the heading “Adjustments to foreign capital gains and losses,” you will be using either worksheet A or B or the worksheet in Pub 514. The instructions will guide you to determine which worksheet to use. Whichever worksheet is used, after completion, you will have the amount to insert into f1116 line 1a if there is a gain or line 5 if there is a loss.
Next go to the foreign tax credit interview. Herein is a screen by screen presentation of a simplified scenario whereby the only income for foreign tax credit is foreign capital gains.
1. Foreign Tax Credit
2. Before We Begin
3. Foreign Taxes
4. Tell Us About Your Foreign Taxes
5. Foreign Taxes
6. Do You Want a Deduction or Credit?
7. Reporting Foreign Taxes Paid
8. No Other Income or Expenses
9. Completing Forms 1116
10. Foreign Tax Credit Worksheet
11. Choose the Income Type
Make the selection then Continue
12. Country Summary
Add a country.
13. Country Name
Select from the list
14. Other Gross Income-Country
If there is a gain from the worksheet.
In the description, enter “Capital Gains"
Enter the amount from the worksheet.
15. Definitely Related Expenses
Enter any applicable amount.
16. Foreign Losses
If there is a net loss from the worksheet, enter it here.
17. Foreign Taxes Paid
Enter the amount
18. Country Summary
19. Any Foreign Source Qualified Dividends or Long Term Capital Gains?
Here, Long Term Cap. Gains refers only to capital gain distributions
from a 1099-DIv. Does not apply.
Continue thru the remaining screens until finished.
Thank you very much for your detailed answer, @rogge1722 !
2 quick followup questions:
- How can I go to 'Business or Rental sections' section? Could you tell me how to jump to the page?
- Since I'm using online version, I'm not able to see the form inside the TurboTax UI. Were you just suggesting reading the Form 1116's instruction and the form so that I can understand how to answer the Turbo Tax interview screens? Also, separately, would you suggest me switching to desktop version, so that I can handle this particular situation better?
In the on-line version, for a sale of rental property, under "wages and income", "other business situations", "sale of business property". It seems that this is the closest description of the sale of an apartment that you owned.
Unless you run into unforeseen complications, the on-line version should suffice.