Foreign tax credit not being reflected

[WTECHIE]

Hello,

I am using turbotax desktop. I recently sold property in India for capital gains as calculated by Turbotax and increasing tax liability by $30000.

Now, I already paid around $22000 capital gains to the Indian govt, when i add this foreign tax credit, i expect my liability to go down by $22000, but it only goes down by $8000, what am i doing wrong?

[SabrinaD2]

You sold property in India and paid $22,000 in capital gains tax there. TurboTax shows your U.S. tax bill going up by $30,000, but when you try to enter the foreign tax credit, it only reduces your U.S. tax bill by $8,000, not the full $22,000 you expected.

Here are some reasons why:

1. FTC Limitations: The foreign tax credit is limited by the amount of U.S. tax you owe on your foreign income, not by the amount you paid overseas. So, if the U.S. tax on your Indian capital gain is only $8,000, that might be the maximum credit you can receive this year.
2. Carryforward Option: The extra $14,000 isn't lost. You can carry it forward to future years and use it to offset future U.S. tax liabilities.

Since you're using TurboTax Desktop, you can check your entries by following these steps:

• At the top of the screen, click on "Forms."
• Open Form 1116 to ensure the income is reported as foreign and the correct country information is listed.

[WTECHIE]

You misunderstood the question, my US tax liability on the sale is $30000. I have already paid $22000 to a foreign entity for this same income, so under DTAA I should be able to claim credit for $22000, what seems to be happening is that Turbotax is unable to link my 1099B property sale to foreign income to totally deduct the extra tax liability.

[WTECHIE]

how do i do this "Open Form 1116 to ensure the income is reported as foreign and the correct country information is listed." for the 1099B income?

[DawnC]

Click on Forms in the upper right hand corner.   Then scroll down the forms list until you find Form 1116.  Click on it and it will open for review on the right side of the screen.   

If you are using TurboTax Online, you will need to visit the Print Center to see your forms.