I have sold some property in India in 2022 and trying to add the gain to taxes. I am using turbotax. I have already paid some tax for this in India in 2023. India has tax year spanning over two years and in this case tax was due in 2023, which I have taken care of. My question is about when to take the foreign tax credit for this transaction. Should I be taking credit in 2022, when the transaction happened or in 2023, when I paid the foreign tax?
Thanks!
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@taxfiler18 , for US purposes, if the transaction ( the disposal of an asset ) took place in calendar year 2022, then you recognize the taxes accrued / paid on your tax filing for the year 2022. If the final amount ( because I though India collects the estimated tax at source ) is different than the amount withheld at source, then you may have to file an amended return to reconcile the difference. I suspect though that in your particular case the final amount has been already settled ( it is now 2023 October ).
Note though that because India uses an indexing scheme to adjust the basis of the asset, the gain for Indian tax purposes may be very different than that for the US ( there is no indexing of basis in the US ). For form 1116 ( foreign tax credit ) you need to use the US gain as the foreign source income and the Indian taxes levied/paid on that .
Does this make sense ? Is there more I can do for you ?
pk
Thank you pk! Yes, my final amount already settled. This happened in 2023, no tax was paid in 2022 in India. In this case, I recognize the tax credit in 2022 or 2023?
I am not using indexation used in India for US tax purposes.
Thanks,
Manoj
Sale transaction happened in 2022 but tax was paid in 2023. Just making it clear.
My question is not answered 100% though it sounds like I can credit for foriegn tax paid in 2023 on 2022 sale transaction. I am reporting this on 2022 tax return.
@taxfiler18 , considering that the transaction that generated the tax demand ( no matter when paid ) still belongs to the tax year 2022 ( for US purposes ) --- India would probably note it as tax year 22/23 since their tax year overlaps two calendar years.
Also note that for foreign taxes paid/accrued , to be recognized/allowed , there must be foreign spource income in that tax year ( for US purposes ).
Therefore my position for recognizing the disposal of the asset, foreign source income and the taxes paid/levied thereon , is still the same -- tax year 2022 for US tax purposes.
Is there more I can do for you ?
Namaste ji
pk
@taxfiler18 , i have answered , I think --- tell me what am I missing --- I will promptly rectify my error(s) -- Please forgive the delay
Thank you pk! My question is answered.
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