Foreign sale of condo with capital gain AND taxes pd to Mexico

[user17759767106]

Hi I need help on how to correctly enter this into turbotax. This property was a rental that I reported and I tried entering the information through the rental update but then it doesn't allow me the deduction for the taxes already paid to Mexico. And it seems turbotax is forcing it as a business entity 100% I'm not sure if that's the way I should go because I'm being told it's also on a different form than 4947. There seems to be several ways to try to enter it.  I tried going into the foreign tax and entered that way and now it seems to have disappeared. I'm very confused the correct way to do it ,  please advise... thank you.

[MaryK4]

To report the sale of a foreign rental property in TurboTax, you must handle the capital gain in the rental section (Schedule E/Form 4797) and the taxes paid to Mexico separately via the Foreign Tax Credit (Form 1116). Do not enter the sale as a 1099-B stock sale.

Report the Sale (Rental Section):

1. Go to Wages & Income > Rental Properties and Royalties (Sch E).
2. Edit your rental property and select "I sold or otherwise disposed of this property".
3. Ensure you answer "Yes" to "Did you sell this property in 2025?" and enter the sale date, sales price, and selling expenses.
4. Under "Sale of Assets/Depreciation", you must select "I stopped using this asset" for each item (house, furniture, etc.) and enter the date of sale to handle depreciation recapture.

This will correctly report the capital gain and recapture on Form 4797/Schedule D, not as a business entity, but as a personal investment property sale.
 

Report Foreign Taxes Paid (Foreign Tax Credit):

1. Navigate to Deductions & Credits > Foreign Taxes (under Estimates and Other Taxes Paid).
2. Select "Yes" to take the Foreign Tax Credit (Form 1116).
3. When asked about foreign source income, select "Foreign country" and choose Mexico.
4. Ensure you select "Foreign Source Capital Gain" when asked for the type of income.
5. Enter the taxes paid to Mexico in the currency conversion amounts required.

Please post any questions if you encounter any problems with the entry.
 

[user17759767106]

Hi! Thank you for the prompt reply.

 So I did follow the bulk of what you said in Step 1I think I got it there were some variations on the screens but it is forcing me still to enter as a business 100%. 

When I go into the foreign tax credit screen I can follow your instructions until I get to the point I get a screen that says do you want to take the deduction or the credit and then you have to choose between an itemized deduction or a take a credit when I start going down the credit path it wants to do AMT and all this other stuff that I have no idea the correct answers to those questions can you please advise thank you so much.

[user17759767106]

Hi since we're getting close to deadlines let me add a lot more detail. 

I do understand how the tax needs to be done as you explained above but the software isn't doing it the way that you have explained unfortunately. The foreign tax credit is trying to take it as a deduction off my overall adjusted gross income not a foreign tax credit where it's applying the amount of already paid in taxes toward the tax burden I have in the US.

I've been a customer over 20 years with turbotaxes there anyway I can just talk to somebody question mark I think it would resolve this much quicker and I have tried calling the phone number but when I tell them I'm having a foreign tax credit it just tries to send me in the same circle I've already gone through period what I mean by that is I've already been through the turbotax software for about 4 or 5 hours adding stuff deleting stuff refreshing stuff trying to get the numbers to match the calculations I have according to the tax code but none of them come close in its over $10,000 difference. The best I can come up with is that it's forcing me down this alternative minimum tax thing which then only lets me do a deduction off from adjusted gross income not a tax credit I can't seem to get the software to let me do an offset to tax as opposed to a deduction from adjusted gross income please help thank you so so much

[DaveF1006]

If you don't mind, can you send me a token of your tax file? This will give me a chance to see why the software "might' be misbehaving and to offer a solution.

TurboTax Online

1. Sign in to TurboTax Online

• Go to tax tools
• tools
• share my file with agent
• Let me know the token number by replying back to this post.

TurboTax Desktop

• Open TurboTax Desktop
• Select Online in the top menu.
• Choose “Send Tax File to Agent” or “Share my file with Agent”.
• TurboTax generates a secure token.
• let me know the number by replying back in this post.

 

 

[user17759767106]

Thank you so much!!

The code is: 122475384-13116419 [restored] 

[DaveF1006]

Thank you for the token. I have reviewed your file and noticed in the foreign tax credit section, you did not enter the gross amount of proceeds from the sale of your house. You entered the foreign tax paid, but not the proceeds.

Revisit the Foreign Tax Credit section and when you reach a screen that says Other Gross Income-Mexico, enter the proceeds of the sale of your condo.  When you do this, your credit is applied and your federal tax due will dramatically reduce.

[user17759767106]

Hello and thank you!  I am making the change now.

So after the gross income screen, there is then a new screen called Definitely Related Expenses. Do I enter the closing costs etc in that area also? (I had not entered the gross amount or the expenses because they already entered them in the rental section where it asked if the asset was sold.)   If yes, I then need to answer is it " itemized" or " deduction from gross income" ?

[DaveF1006]

Even if you entered the gross amount in the rental section, it doesn't automatically populate in the Foreign Tax Credit section. You still have to manually input it. 

As far as expenses, assuming you have already entered these in the sale of your house, don't enter these again. Those numbers are already built into the gain/loss calculation of the sale of your house.