Form 1116 Line 1a and 3d entries. For Long term Capital gains(passive) which figure to be entered.?

[Raytam]

Form 1116 Line 1a and 3d entries.
For  property Long term Capital gains(passive) which figure to be entered.?
Is it Gross means total value with out deducting costs for the cost of purchase or after deducting all costs? One CPA says in Q&A session it is  gross(with out deducting costs) to be entered.
Form 1116 line 3d instructions  says 'For lines 3d and 3e, gross income means the total of your gross receipts (reduced by cost of goods sold), total capital and ordinary ‘GAINS’(before subtracting any losses).
Per above, I think For LTCG net gain from (schedule Column h ) to be entered? Which one to be?
Thanks.

[tagteam]

@pk ?

[Raytam]

I mean Capital gain, from Schedule D,line h

[pk]

@Raytam  having gone through your post describing the situation, my understanding in the situation/scenario is as follows :

(a) you a US Person ( citizen/GreenCard / Resident for Tax purposes

(b) you owned capital asset -- probably real-estate -- in another country

(c) you disposed of the asset during the tax year  ( 2022 ?) and are showing a net profit on Schedule-D

(d) the foreign country / tax authority is now taxed you on the disposal of the asset  ( which country? )

(e) you have chosen to take foreign tax credit and therefore filing a form 1116.

If this is correct --

1. for purposes of form 1116 , Schedule-D is not germane -- ignore the figures there for the time being

2. for form 1116, it needs to know what was your foreign income which the foreign tax was imposed;  what was the foreign taxes paid  ( if there is a refund on this you will then have to file an amended US return for that ).

3.  line  1(a) -- this should be your gross income from the disposition -- generally the price of the property

disposed LESS basis  i.e. the expenses to acquire the asset. ( note that this should be based on the local laws -- some countries allow depreciation , some allow indexing  etc. etc. )

4.  line  2 should be  all expenses related to the selling/ disposal of the asset --- this amount  should be  under the law of the land 

5.  line 7 should therefore be equivalent to  your net income from foreign sources for these  disposals.

6. Note that all these are expressed in US $ of the day of the activity.

Please see the instructions for form 1116

Does this help ?  Is there more I can do for you ?

pk

[Raytam]

Thanks for your reply PK.I appreciate.

Coming to your reply:

a,b,c.d.e your understanding is 100% correct.They won't give 1099B or S kind off.

Regarding point 3---Line item 1a)  you mentioned that the gross income ==Sale price minus expenses( costs of acquisition) .Correct?

In this case that is the same   case in schedule D :

[Column d) Proceeds(sale price)  ]  Minus  [column e) Costs of acquisition+Line f) Capital improvements ] ==line h) capital gains.

So I presume that what you mentioned in point3) is to be again line h) or is it line d)?

I presume it is equivalent amount of line h in sch D.--the gain.

Please correct  me if it is otherwise.

Many thanks.

[pk]

@Raytam  you are generally correct   --- both form 4797 ( sale of income property implying  non-main residence) and Schedule-D  compute the gain based on sales  price less allowable expenses  LESS basis ( adjusted or otherwise )..

Does this help ?  if you need more please tell me more about the asset that you disposed off and in which country --please 

pk

[Raytam]

Thanks for  the help. for confirming that Line 1 a form 1116 for individual real property is gain and which is already computed in shedule D,line h.

But it is not related to  form 4797 since it is personal property .

Also  can you tell me exchange conversion rate---spot rate to be taken on date of-- sale,date of acquisition and date of improvements .As per form IRS site f Foreign  currency exchange rates are to be on the date of EVENT .correct?

You responses are helpful. Also can you please share your thoughts on other thread regarding form 1116 AMT and sch B, whether can be attached to return where AMT is zero .

[Raytam]

Hi PK,

Thanks for the help for so far.

I am not able to post this as separate question in TT.Some how it is not giving me chance.

Form 1116 Line a--Basic question.
Line 1 a adjustments -depends on tax rate that  applies to individual case for 'Qualified dividends AND CAPITAL gains' and section 1251 and section 1239 Gains .

Does this  adjustment stipulation covers LTCG on Real Property.?

This is since the documentation mostly it revolves around --Qualified dividends and capital gain Distributions understanding is LTCG for real property sale will not relate to the above "capital gain distributions'

Many thanks in advance for your answer.

(And I was suggested previously by experts that I may ask CPA. But few CPAs I spoke have not with knowledge of this forum experts--on FTC. experts like you ,Mike and Rogge has better knowledge than many. That is why I am posting here for help.)