I sold a foreign investment property and had a long-term capital loss. Since I am a non-resident in that country, taxes were deducted by the buyer and paid to the country at the time of sale. I will get my refund when I file taxes in the foreign country next year, but since I have been using "cash basis" for reporting foreign taxes, I have shown taxes paid in my 1116.
1. Where and how do I report my long-term capital losses in 1116?
2. Will reporting this loss decrease my foreign tax credit?
Thanks in advance!
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First, you would report this as an investment sale.
Now you income is reported, so now you may work on the foreign tax credit. As you begin working on the credit, the program will ask you what your gross foreign income is. Here you will list the gross proceeds of the sale (not the net). Then a few screens later you will enter the foreign tax paid.
No, the capital loss will not decrease your foreign tax credit but it may limit the amount of credit you may receive for the year. A foreign tax credit is a non-refundable credit that is limited by the amount of your tax liability for the year. The capital loss will reduce your tax liability for the year and may possibly limit your credit for the year to the amount of your tax liability. Any excess is a carryover that can carryover for the next ten years provided if you have foreign income to apply in those future years.
First, you would report this as an investment sale.
Now you income is reported, so now you may work on the foreign tax credit. As you begin working on the credit, the program will ask you what your gross foreign income is. Here you will list the gross proceeds of the sale (not the net). Then a few screens later you will enter the foreign tax paid.
No, the capital loss will not decrease your foreign tax credit but it may limit the amount of credit you may receive for the year. A foreign tax credit is a non-refundable credit that is limited by the amount of your tax liability for the year. The capital loss will reduce your tax liability for the year and may possibly limit your credit for the year to the amount of your tax liability. Any excess is a carryover that can carryover for the next ten years provided if you have foreign income to apply in those future years.
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