When to claim the foreign tax credit

[TroutVision]

This year (2025) I will sell a property in Portugal.  According to Portuguese law, the capital gains tax will be known and the funds kept in a Portuguese bank account, but the tax payment will occur in 2026.  The Community posts indicate that the sale should be reported on the 2025 tax return but the foreign tax credit must be claimed in 2026 on an amended return if I use the cash basis.  I have 2 questions.  (1) Amending my 2025 return seems very inefficient; the Portuguese capital gains tax is calculated in 2025 and the money is in the bank.  Am I really required to report the capital gains tax in 2026 by amending my 2025 return? (2) If the answer to 1 is "yes", then can I use the accrual method for the sale of the foreign property and , if yes, will the accrual method be required for all future transactions or just foreign ones?  Thanks 

[pk · Accepted solution]

@TroutVision  

(a) Assuming that you sell / dispose off the prop. in 2025, and that this was not an income property ( i.e. not used for renting out etc. ),  you will need to recognize this transaction on your 2025 US federal tax return and ONLY per US tax laws.

(b) The income taxes imposed / levied by Portugal ( where the property is situated) is eligible for  Foreign Tax Credit up to the lesser of US taxes on this foreign source income and that paid to the foreign taxing authority.  Generally this is best done once the foreign taxes have been settled or there is a chance that you may have to amend your filed return if, and ONLY if ,there is a difference between  the claimed amount and the final amount of foreign taxes.

(c) Since the Portuguese tax year is the same as US tax year, there should be no issue in claiming the FTC on your  US tax return for the tax year 2025.

Does this make sense ?  Is there more I can do for you ?

[TroutVision]

Thank you for your response and logical answer.