US citizen sold property in Philippines. Philippine buyer paid the capital gain tax. Do I still pay tax here in US and How do I know how much? What form to use?

[pii951972]

Philippine property is not primary residence

[DoninGA]

If you had a gain on the sale, then on your federal tax return, you will owe taxes on that gain.

To enter an investment sale other than from a brokerage account (1099-B), follow the steps below.

• Click on Federal Taxes (Personal using Home and Business)
• Click on Wages and Income (Personal Income using Home and Business)
• Click on I'll choose what I work on (if shown)
• Under Investment Income
• On Stocks, Mutual Funds, Bonds, Other, click the start or update button

Or enter investment sales in the Search box located in the upper right of the program screen.  Click on Jump to investment sales

On the next screen, click Yes

On the next screen, click No

On the next screen, choose the option that pertains to the type of investment sale you are reporting and continue with the section until it completes.

[randy2]

If the seller (US citizen) paid capital gains tax to Phillipines, wouldn't there be a tax credit on the US return for taxes paid to Phillipines?  How would that be reported on the 1040?

[Critter]

https://ttlc.intuit.com/community/entering-importing/help/where-do-i-enter-the-foreign-tax-credit-fo...

[blesilda13]

Us citizen sold property in the Philippines buyers pays for capital gain

[ReneeM7122]

Yes, if you are a US citizen then you must report the sale and proceeds from the property in the Philippines.  The IRS requires taxpayers to report income from all sources both domestic and foreign.  It doesn't mean that you will have to pay US tax on it, because you can offset the foreign taxes that you paid to the Philippines on your US tax return.   TurboTax will help you with this process.

To enter this transaction in TurboTax Online or Desktop, please follow these steps:

1. Once you are in your tax return, click on the “Federal Taxes"" tab ("Personal" tab in TurboTax Home & Business)
2. Next click on “Wages & Income” ("Personal Income" in TurboTax Home & Business)
3. Next click on “I’ll choose what I work on”
4. Scroll down the screen until to come to the section “Investment Income”
5. Choose “Stocks, Mutual Funds, Bonds, Other” and select “start’ (or “update” is you have already worked on this section) (see Screenshot #1)
6. The first screen will ask if you sold any investments during the current tax year (This includes any sale of real property held as an investment property so answer “yes” to this question)
7. Since you did not receive a 1099-B, answer “no” to the 1099-B question
8. On the next screen you will enter the sales information as follows
   1. Description – usually the address of the property sold
   2. Date Sold – Date you sold the property
   3. Date Acquired – Date you inherited the property
   4. Sales Proceeds – Total amount received for the property (in USD)
   5. Cost Basis – Fair Market Value of the property (in USD) at the time of inheritance.
   6. Adjustment Amount – leave this box blank (see attached screenshot #2)

Here is a TurboTax article that explains more about reporting the sale of foreign property.

You may also be required to file two special forms with your 2020 tax return:

• FBAR (FinCEN Form 114) 

A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.   The name of the form to file If you have any questions or require technical assistance using the BSA E-Filing system, you may call them at 866-270-0733;  or if calling from outside the United States, 313-234-6146. 

Report of Foreign Bank and Financial Accounts

• Foreign Accounts Tax Compliance Act (FATCA)

Under FATCA, certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. The IRS receives information about foreign assets on Form 8938 on your federal tax return. 

You must file the FBAR electronically through the Financial Crimes Enforcement Network’s BSA E-Filing System. You don’t file the FBAR with your federal tax return. 

Here is an IRS article that explains the comparison between FATCA and FBAR requirements.

@blesinda13

[snwong79]

Thank you ReneeM7122 for that detailed instructions.

I have a few questions. 

1)  Do we enter the net sales proceeds (after the capital gain tax paid in the Philippines)?  

2)  If not, then would you mind assisting in how to enter the foreign tax credit?  It was asking me to choose between itemized deduction or take a credit?  The Capital Gain Tax I paid was $15,000 from the sale of a property.

Thanks!

[ReneeM7122]

You should record the capital gains as well as the tax paid overseas.  You need to record the tax paid in order to get a tax credit.

o qualify for the tax credit you will need to meet the following requirements:

• The foreign tax must be imposed on you.
• You must have paid or accrued the tax.
• The tax must be the legal and actual foreign tax liability.
• The tax must be an income tax (or a tax in lieu of an income tax)

The TurboTax program will make the necessary calculations for you.  

If you earned income outside of the U.S., you need to report the income.  Here's a TurboTax link with more information.

@snwong79