Sale of inherited foreign land and foreign tax credit

[Cebusguy]

Married filing jointly using TurboTax Deluxe downloaded on Windows.   My wife inherited property in Hungary in 2024 that was sold in 2024.  There was a small capital gain over the cost basis at time of inheritance.  I know the gain has to be entered as a capital gain on Schedule D and she has to submit Form 8949.  She will have to file and pay a capital gain tax to Hungary.  How do we report this foreign tax paid on our US 1040 using TurboTax so she won't be taxed twice for this?  I have read that there is a Form 1116 for Foreign Tax Credit.  Is this the correct form?  If so, how do I access this in TurboTax Deluxe and how would I add this to my current 1040 form?    Thank you for any help.

[DianeW777 · Accepted solution]

Yes, Form 1116 is the correct form. The Foreign Tax Credit can be entered using the steps in the link below. Also included is the link for the exchange rate should you need it.

You will need the exact dollar amount of actual tax paid to Hungary. The link will provide TurboTax Desktop version instructions.

• Where do I enter the foreign tax credit (Form 1116) or deduction?
• Yearly Average Currency Exchange Rates

[Cebusguy]

One more question if you would be so kind: 

Hungarian law uses the date of contract (10/24) as the date of sale, even though my wife only received the money for the sale last week.  So my wife will have to file a 2024 Hungarian tax return and pay the capital gains tax by April 2025 (she will do it next week).  This will be before we file our US 2024 1040.  Do we include the Hungarian capital gain and foreign tax paid on our US 2024 return since the sale was in 2024 or do we put the capital gain and foreign tax paid on our 2025 return since she paid the tax on the capital gain in 2025 (even though it was for 2024)?  

Thank you.  

[DaveF1006]

My suggestion is to wait and report your capital gains and claim your Foreign Tax Credit on your 2025 tax return since these were paid in 2025. This way the capital gains and foreign tax credit are reported in the same year and avoid confusion with the IRS.

The reason I say this is that if you claim a foreign tax credit as accrued in 2024, but not report your capital gains that were paid to you, the IRS may question you why your capital gains weren't reported in your 2024 return. You will wish to keep the reporting consistent so there won't be any confusion anywhere.