We sold our ancestral home in India and paid a whopping amount as capital gains. How do I add the sale and capital gains tax in India to my tax return?

[aparnabasker]

I tried filling out the form 1116 - Foreign tax paid. But to no avail. It does not account for the high capital gains paid.

[ThomasM125]

You enter investment sales in the Wages and Income section of TurboTax, then Investments Sales, then Stocks, cryptocurrency, Mutual Funds, Bonds, etc... Skip the section where it asks if you want to upload your tax documents. Choose Other as the type of investment you want to enter. You'll come to a screen where you can enter in your sales proceeds and cost basis:

You need to complete the Foreign Taxes section, under Estimates and Other Taxes Paid, in the Deductions and Credits section of TurboTax. You must first enter a country and then enter the capital gain income earned in that country:

On another screen you will enter the foreign taxes paid on the income:

Form 1116 will be generated and will calculate the amount of your foreign tax credit.

[aparnabasker]

Do I need to enter it as both investment income and passive income? I have paid humongous taxes in India as required. I am confused. Please clarify.

[MarilynG1]

You're only reporting the income once, as a Sale of Investment.

Although you enter the amount you were taxed on in the Foreign Tax Credit section, it is not added to income; this is just to relate proceeds to amount of tax for the credit calculation.

Here's more info on Claiming the Foreign Tax Credit.

@aparnabasker 

[aparnabasker]

It's still not clear to me. Do I still included in the income on "Wages and Income" And include it as Passive Income on form 1116? I appreciate your response.

[MarilynG1]

You are NOT reporting it as income on Form 1116; the sales info is needed to calculate the Foreign Tax Credit on that form. 

The income is being reported on Form 8949 as an Investment Sale.

@aparnabasker