I was going thru this thread
and this one
I have a different tax situation. I sold one real-estate property in India. Indian government immediately deduct the taxes on that property sale(called TDS or tax deduction at source) which is around 21.5% of the overall value(not profit but overall value).
I am US Citizen. Do I need to report this? Can i get some money back as here in USA - my effective tax rate is around 15%.
When I called Turbo tax - I got some shaky answers - like fill form 1116. When i filled form 1116 - it seems I can claim the entire tax that i paid in India back here in USA. This really doesn't make sense to me as whatever is my overall long term gains(property was held for 19 years), I need to either pay the taxes in USA or India.
Can somebody guide me? thanks in advance.
I don't trust turbo tax tax experts nowadays a lot as every time I will call - I will get a different advice. Most of them are seasonal workers and contractors.
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Yes, to receive a foreign tax credit, you need to fill out form 1116. The foreign tax credit that is claimed is the lesser of the amount of foreign taxes paid or the U.S. tax liability on the foreign income. In your case, it is possible that the foreign taxes you paid were less than your US tax liability thus you were able to claim full credit for your foreign taxes paid. Here are the complete steps for reporting this income accurately so that you can receive the proper foreign income credit.
First report the sale of your property in the investment section of your return.
Now to claim your Foreign Tax Credit.
If you haven't reported your income and credit in this manner, then do so as this will accurately calculate what your foreign tax credit should be.
[Edited 02/13/24|4:15 pm PST]
Thanks.
This should be considered passive income, right?
Even after filling this, for one condition:
Foreign taxes paid in foreign currency and you converted the amounts to U.S. dollars
It is asking me to use the forms method(directly editing the form 1116).
But when I go to the forms mode - I don't see a place for currency conversion. I used google to do the currency conversion so it should be fine.
When i go to the forms mode - I see form 1116 AMT also - I don't know why and how it got generated?
After that it also indicates that passive income tax credit exceeded your allowed credit by certain $$$ which can be taken over the next 10 years. I am confused whether I am doing it right or not?
Yes, you are correct. I erred in my previous post declaring this general category income. To report this on your US tax return, you will need to report this in US dollars. Unfortunately, Turbo Tax does not make these conversions so you will need to be responsible for performing your own currency conversions.
As far as the far as the Form 1116 AMT, it sounds like you may be in an alternative tax situation. Form 1116 AMT limits the foreign tax credit you can claim if your income is subject to AMT. You may wish to view the following IRS source and look under the heading "Am I subject to the AMT". Also you may wish to view this link for additional information. The income from the sale of your house may have prompted the AMT activity in your return.
The Foreign Tax Credit is a non-refundable credit meaning that you may not claim a credit if your credit is greater than your tax liability for the year. On your 1040 return, compare Line 16 and line 24. If line 16 has an amount listed but line 24 doesn't, this means your tax liability is reduced to 0 and no more credit can be applied. Chances are though, some of your credit may be listed on line 20 of your 1040 and the rest listed as a carryover that will carryforward for the next ten years. You also may carry it back to 2022 if you reported foreign income on your 2022 return and paid foreign taxes on it.
[Edited 02/13/24|4:48 pm PST]
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