I put the sale of a property in India as income. I paid foreign tax on it. Where do I enter that I paid this foreign tax? Foreign tax credit says I had no foreign income.

[mercamma]

Under the income section, I put in that I sold land (which happens to be in India), which resulted in capital gains.

I have paid tax in India on that property already, and I need to enter that to get a Foreign Tax Credit, but when I go to that section, it says I have no foreign income (there was nowhere to mark under the land sale portion of turbotax that it was foreign land), so I can't get a foreign tax credit.

It seems like I have to somehow tell turbotax that the income is foreign, which I don't see how to do, or there is another way to enter that I paid foreign tax in the deductions section, but I don't see that.

Anybody know what the correct procedure is here?

[rogge1722]

Here is the procedure to obtain the foreign tax credit for foreign taxes paid on foreign capital gains/losses.

It is assumed that the reporting of all income including foreign capital gains/losses 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 or losses.

1. Foreign Tax Credit
         Yes
2. Before We Begin
        Yes
3. Foreign Taxes
        Continue
4. Tell Us About Your Foreign Taxes
         Continue
5. Foreign Taxes
       Continue
6. Do You Want a Deduction or Credit?
       Credit
7. Reporting Foreign Taxes Paid
      Continue
8. No Other Income or Expenses
       No
9. Completing Forms 1116
         Continue
10. Foreign Tax Credit Worksheet
         Continue
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 Gain”
         Enter the amount from the worksheet.
15. Definitely Related Expenses
        Enter any applicable amount.
16. Foreign Losses
       If you had a net foreign loss from the worksheet,
        enter it here.
17. Foreign Taxes Paid
       Enter the amount
18. Country Summary
       Done
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.
Continue thru the remaining screens until finished.

[mercamma]

Thanks so much for your reply.

I think the issue is I'm entering the income from the sale of the property incorrectly. 

When I go to enter the Foreign Tax Credit, this is what I do/get:

1) Go to Foreign Tax Credit section: It says :"We’ll check if you’re eligible for the Foreign Tax Credit"

    Continue

2) Before we begin, do you have any income left to enter?

   "Yes I'm finished"  and Continue

3) It says "Looks like the Foreign Tax Credit doesn't apply this year" and I can't go on...

On the Wages and Income section, I had entered the land sale in the "Stocks, Mutual Funds, Bonds, Other" section.

1)  Click on this section

2) Select "Other (land, second homes, personal items", then Continue.

3)  Enter broker name in India for land sale. Continue.

4) Fill out information concerning sale price, that I inherited it, basis, etc. Continue.

5) I check that there are no other sales expenses (since the capital gains tax paid in India is not a sales expense). Continue 

I don't see anywhere here to identify that the land was sold outside the USA, and I think this is the issue. Is there someplace else I should be recording this income, to tell turbotax that this is a *foreign* sale of land?

There is a section for Foreign Earned Income, but that appears to only be for wages and such, not for sales.

So I think my problem is on the income side of things.

Thanks much!

[mercamma]

What appears to work, although it's coloring outside of the lines a little I think.

Add on a fake 1099-INT with $0 income but it has the foreign tax paid on it. So this is where the foreign tax is entered, and the income from the land sale is entered elsewhere.

Then I was able to enter the foreign tax credit section accordingly.

Does this sound ok to do?

I certainly don't have a 1099-INT, and it wasn't interest or dividend income, but it's the only place I can see where I can enter foreign tax paid. 

[rogge1722]

That screen claiming that the foreign tax credit does not apply should not appear.  On the income side, TT  does not know if income is foreign or domestic and does not know if any foreign tax is paid except for dividends, interest , and k-1's.  There could be income from capital gains, rentals, royalties, annuities, etc. from foreign sources and TT doesn't care about the source on the income side.  I suggest that you bring up the 1040 and verify that there is income posted on line 7.  If there is then delete f1116 and go thru the foreign tax credit interview again.  Also delete the fake 1099-INT as that could cause problems. 

[Siva Ramaswami]

Hi,

I have a similar situation. I sold a land in India in 2022 and per your instructions, added the taxable income on the proceeds into my federal income. This increased my total taxable income. I also went ahead and entered the deductions per your instructions and I got the Federal refund to reflect the deduction. However upon finishing off the state return I found to by surprise that my state tax due got shot up by a couple of thousands more due to the fact that my total taxable income has increased due to the land sale. Is this normal or is there a way to claim deduction on my state return as well?

Thanks in advance for your response.

-Siva

[AbrahamT]

What you have to understand is that the foreign tax credit is only a credit on US taxes that you had to pay on this foreign source income. It is NOT a credit against US source income. That being said,  there typically would not be any credit against that income for state purposes as this is a foreign "country." issue  NOT a "state" issue. All the income from that foreign country that is taxed for US purposes will be likely be taxed on the state level as well. You will get the credit on the federal level NOT on the state level. If however you decide to go the route of using the foreign income "exclusion" instead of the foreign tax "credit" See HERE   pg. 3 for complete details of what is better to claim. then most states will allow you to exclude that foreign income as well under certain conditions. like living abroad for 6 months etc. which doesn't sound like the case in your situation.