reporting sale of foreign property (second home) in Turbo Tax Online

[lovely_bala]

Sold a Foreign property  (second home) and need help with some tax filing questions.

* Can a capital loss in foreign tax filing ( india) reflected in US tax return?? I assume NO.. Even though, it was reported as capital loss in the foreign tax return,  US tax filing has different capital gain calculation and shall report a capital gain for the same sale. correct ?

I navigated through the following to report the sale.. I am using On the online Turbo tax edition. Please confirm if this correct.

* Wages & Income 

* Investment and savings
* Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B)
* Other ( land,second homes, personal items 1099-S)

 There is no 1099-S on foreign property sale but i still need to choose this, correct ?

* Enter the name of the person or financial institution that brokered this sale

No real estate agent or institution brokered this sale. In this case, Can I enter the name of the Purchaser

* What type of investment did you sell? ->  selected second homes

* How did you receive this investment -> Selected purchased it

* Description -> entered the property address

* When did you receive this investment? -> entered the purchase date
Date sold ->  Entered the   sold  date

Proceeds ->  Sale price converted into USD using  the exchange rate on the day of the sale, correct ?

Total amount paid 

cost basis ( purchase price + purchase cost) using the exchange rate on the day of the purchase, correct ?

I can't add the agent fee and home improvement costs since unfortunately i don't have the records/evidences/invoices

Click to next page

paid sales expenses that aren't included in the sale proceeds reported on the form

Can I  include cost like  Air travel expense for me to travel to India to execute the sale ?

[Laura_CPA]

Hi lovely_bala, 

Hope you are doing well! Indeed, you have it all correct and if I may add, if you had paid foreign taxes on the gain of the sale in India, you could have reported a foreign tax credit on your 1040 to offset the double taxation situation.

Cheers,

Laura 

[lovely_bala]

Thanks Laura..

As I indicated in the comment, I only incurred capital loss on the sale hence there is no foreign taxes paid.

Though  you indicated that i have it all correct.. Can I get a specific comment on the following two items.. Thank you

Total amount paid 

cost basis ( purchase price + purchase cost) using the exchange rate on the day of the purchase, correct ?

I can't add the agent fee and home improvement costs since unfortunately i don't have the records/evidences/invoices.. Is that correct ? What other form of records IRS for the items that i can't produce evidence/invoices

Click to next page

paid sales expenses that aren't included in the sale proceeds reported on the form

Can I  include cost like  Air travel expense for me to travel to India to execute the sale ?  Is this accepted by IRS ?

[Laura_CPA]

Definitely @lovely_bala! 

1. The cost/basis is the purchase price in India (then translate it to USD using the date it was purchased, IRS recommends using spot rate and Oanda.com is a good place for that - also checkout: IRS International Taxpayers) 

2. The cost basis can be adjusted by adding improvements, costs associated with the sale of the home (including the travel expenses, commission expenses). If you do not have the original documentation to prove these expenses, you can trace them by searching in your bank statements, credit card statements for previous years. In case of an audit the IRS will request for specific documents or any form of document to prove that the expense was a reasonable one in nature. 

Hope this helps,

Laura 

[vin_sphinx]

Hi @Laura_CPA , as you mentioned - I did pay taxes for the sale of the property in India (it is called TDS); how do I enter it as Foreign Tax Credit (along with my other Form 1116 entries)? Do you add the capital gain and tax paid in "Country Summary"?  

[DaveF1006]

Yes, you would add a country in the country summary screen and repot the capital gains income and the foreign tax paid on that income.

@vin_sphinx 

[vin_sphinx]

@DaveF1006 sorry, need a bit more clarity on these 2 screens:
1. Country Summary > Country (India) > Other Gross Income --- is this where I enter a description amount of the capital gain (or is it the full sale price?)?

2. Any foreign source qualified dividends or long term capital gains > Foreign qualified dividends and l.t. capital gains --- is this where I enter just the capital gain (sale minus FMV) or just don't put anything here?

It's confusing with TT trying to report a foreign property sale 🙂

[DaveF1006]

You would enter the full sales price here under gross income. In answer to the second questions, you would enter the capital gain, which would be gross sales price - FMV ( at the date of the inheritance).

[dpurkayastha]

Hi @vin_sphinx ,

I am trying to report foreign earnings and foreign tax. I am following your post from last year. 

I am using TT home and business 2023.

My question is how to navigate to this prompt : 

1. Country Summary > Country (India) > Other Gross Income --- is this where I enter a description amount of the capital gain (or is it the full sale price?)?

2. Any foreign source qualified dividends or long term capital gains > Foreign qualified dividends and l.t. capital gains --- is this where I enter just the capital gain (sale minus FMV) or just don't put anything here?

How did you go to Country summary?

Thanks in advance.

[DaveF1006]

India taxes on the capital gains that result from the sale of the house so report the capital gains amount earned on the sale in India as other gross income. This is the only gross income to report in this section.

You will need to report the sale of your house first as an investment sale before you begin to work on your Foreign Tax Credit. 

1. In your Home and Business program, go to personal>personal income>choose what you work on.
2. Go to investment income
3. Go to Stocks, Cryptocurrency .......
4. Classify this as other
5. Follow all prompts that follow to determine what your capital gains is on the sale.

Once you enter the gross income for India and the foreign taxes paid, you should have a country summary appear like the screenshot I have included below but reach out to us if you have additional questions.

@dpurkayastha 

[dpurkayastha]

Hi @DaveF1006

Thank you very much for your response. 

I followed the steps you mentioned for reporting the sale:

"

1. In your Home and Business program, go to personal>personal income>choose what you work on.
2. Go to investment income
3. Go to Stocks, Cryptocurrency .......
4. Classify this as other
5. Follow all prompts that follow to determine what your capital gains is on the sale.

Once you enter the gross income for India and the foreign taxes paid. "

But after step 5, i am not able to enter "foreign taxes paid".  The personal income section did not ask for foreign taxes paid. How do I enter foreign taxes paid?

Thanks in advance

[DaveF1006]

This would not be entered here. The first five steps I outlined is only to report your income from the sale of your house. To claim the income tax paid to India, you need to claim this in the foreign tax credit section. This is a second step you need to complete. Here are the steps you use to report this and to receive your foreign tax credit.

1. Federal>deductions and credits>deductions and credits>estimate and other taxes paid>Foreign Tax Credit>start or revisit
2. When it asks We just need to check if you have any uncommon situations indicate I paid foreign taxes on income I earned while working in another country.  
3. Navigate and record the entries that the program asks for and when you reach the page that mentions Foreign Tax Credit Worksheet, this is where you take notice between a deduction or credit.
4. The first that you will be asked is what category of income is it, you will say general category income..
5. Next screen will say Country Summary, select add a country and then select India.
6. When it says Other Gross Income - India.  Here is where you report the capital gains income that your sale was taxed on in India. 
7. Then you will navigate through the screens until you come to a screen that says Foreign Taxes Paid - India, here is where you record the amount paid under Foreign Taxes on Other Income. Then below that you will enter the amount of taxes paid in taxes.  This is a screenshot what this screen looks like.  After you report this , you should receive a country summary screen included in my previous post.

@dpurkayastha 

[dpurkayastha]

Hi @DaveF1006 , thanks, I made some progress and entered "Foreign taxes paid - India".

The next screen asks for "Any foreign source qualified dividends or long term capital gains?" Let us know how much of the income you reported for the following country was qualified dividends or long term capital gain income. "

What does this mean?

[DaveF1006]

If you owned the the property you sold for more than a year, the amount of income you reported in the investment section of the return is long term capital gains.  You would record this amount in the section titled Let us know how much of the income you reported for the following country was qualified dividends or long term capital gain income. This should have no impact to your tax return.

if you owned the property less than a year, you would not record anything in this section.

[rsubram]

In TT 2023, when I enter the whole income as LT Cap Gains in the screen asking for "Let us know how much of the income you reported for the following country was qualified dividends or long term capital gain income", TT increases the taxes owed. Why is that? Your last response suggests there should be no impact.

Also why would income from LT Cap Gains decrease the amount/percentage of foreign tax credit that is allowed? (which is what is happening because the taxes owed goes up from before this info was entered on that page)