Help on form 1116 ?

[hp100]

I inherited a house in the foreign country,  sold, paid the tax in the foreign country.  I understand this capital gain is a long term capital gain.  I am trying to get the foreign tax credit by filling up using TurboTax.

 I had an income of $400,000,  expense of $20,000 from the sale.

TT is asking,

Country foreign country                                                    country name
Total foreign income for this category                            $400,000
Foreign qualified dividends and L.T. capital gain         ????

What should  I  enter?   $0  or $400,000,

Next page is asking the expense, so enter  $20,000.

[DaveF1006]

First of all, I am not quite sure how you are reporting this but this is the method to report the sale of an inherited house in the foreign country. 

1. Once you are in your tax return, click on the “Federal Taxes” tab ("Personal" tab in TurboTax Home & Business)
2. Next click on “Wages & Income” ("Personal Income" in TurboTax Home & Business)
3. Next click on “I’ll choose what I work on” (jump to full list)
4. Scroll down the screen until to come to the section “Investment Income”
5. Choose “Stocks, Mutual Funds, Bonds, Other” and select “start’ (or “update” is you have already worked on this section.
6. The first screen will ask if you sold any investments during the current tax year (This includes any sale of real property held as an investment property so answer “yes” to this question)
7. Since you did not receive a 1099-B, answer “no” to the 1099-B question
8. Choose type of investment you sold - select everything else
9. Some basic information:
   1. Description –  Usually the address of the property sold
   2. Sales Proceeds – Net proceeds from the sale For you, you will enter $380,000, which is $400,000 minus $20,000 (expenses of the sale)
   3. Date Sold – Date you sold the property
10. Tell us how you acquired the property - inheritance
11. Enter the date inherited
12. Enter the your fair market value - Fair Market Value of the property at the time of inheritance plus any capital improvements since inheriting it.  This is the basis of the property
13. If you had a loss, on the question of "Did you use this property for business or investment?" If the inherited house was not used for any personal use (no family member lived in it or used it between the time of inheritance and the sale), you will answer that this was for investment.

After entering the information above then you will enter information to claim your Foreign Tax Credit. Here is how to enter.

1. Federal>deductions and credits
2. Estimate and other taxes paid
3. Foreign Tax Credit>start or revisit
4. You will enter $400,000 for income and then list the $20,000 expense in the following page when it asks for this information
5. There is no Foreign Dividend on this sale and the long term gain is strictly the amount of Proceeds from the sale minus the expenses minus the FMV of the house upon the death of the decedent. The long term gained is shown on line 7 of your 1040. You can go there by going to tax tools>tools>view tax summary>preview my 1040, if using Turbo Tax online.
6. If using the software, go to forms mode and then look at your 1040.
7. if you have more than 1 capital gains source, you will need to look in your program summary in the stocks and bonds section and select the sale transaction regarding the sale of the investment. It will usually indicate what the capital gains is in that section.

I included how to enter the sale in the first set of steps.  I am not sure if you did this or not but I wanted to make sure you reported this completely and accurately. 

[hp100]

Yes, I followed your steps.  

First part, I entered the sales information about the inherited house.  TT calculated the capital gain tax ok.

Second part,  getting  the foreign tax credit.

Go to the "foreign tax" in the Deduction.

1. I choose "You have no foreign tax credit carry-overs from earlier years, or ... ""
2. Choose "Take a credit"
3. asking "INT", then "DIV", passed since no INT and DIV.
Completing Forms 1116
4. Choose "Passive income"
5. Add a Country, choose a country.
6.Enter "sold inherited house", "400,000"
7.Description/amount/country,deduction type"
Enter "expense", "$20,000", country, "Deduction from gross income"
8. Choose,"No, I have foreign taxes paid on ..."
Foreign taxes on Other Income, enter "$20,000"
9.Country foreign                                                           country
Total foreign income for this category                        $400,000
Foreign qualified dividends and L.T. capital gain      ????

What should be entered, $0 or $400,000 ?

[RobertB4444]

@hp100  Your total Long Term Capital Gain is the amount that you're paying taxes on - the $400,000 minus the $20,000 of expenses.

[hpaik100]

I may get confusing the terminology.

Let the base price of the house 60,000

sold price 460,000

expenses.  20,000

then enter  38,000 for “LT capital gain” , right?

[Vanessa A]

Your LT Gain would be $380,000 in that situation, not $38,000.  But assuming that is just a typo, it appears you are understanding this. 

[hpaik100]

Thanks everybody.  I realized that lt is different way of calculation for the credit in the lt capital gain, that’s why tt asks the foreign lt gain again…