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Capital gains tax paid in Mexico

Forum|Forum|1 year ago
February 15, 2025
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If I sold an investment condo in Mexico can I deduct the capital gains tax I paid to the Mexican Govmt? I am a US citizen and owned it for 11 years.

Best answer by pk12_2

@dchoover1 thankyou for the answers to my questions

( a) assuming that you have already reported the sale/disposition of income property ( form 4797 ) and the gain ) per US laws ) have already been included on form 1040.

(b) To claim the foreign tax credit you need to tell TurboTax that you foreign Tax Credit (under Deductions and Credits tab and from the list of "deductions and Credits", choosing Foreign Tax Credit.). It should then walk you through filling out the form 1116. You will need to input Foreign Gross Income ( this generally should be the Gain from disposition of the asset -- actually the lower of gain computed under US and Foreign tax laws ), Foreign Taxes ( Income Taxes paid to a foreign taxing authority under the ambit of the Tax Treaty between US and the other contracting country ).

(c) Note that form 1116 will use a ratiometric methos to allocate your US tax liability on this "doubly taxed" income. While US will recognize the total taxes paid to a foreign taxing authority dollar for dollar, the allowable credit for the US tax year is the lesser of actual amount paid and the US imposed tax on the same income. Thus in the best case, you will get a tax credit equal to the US tax on the same income. You carry back one year or carry forward the unused foreign tax credit --but usually this is available only with foreign income ( same form 1116 computation / limitation comes into play ).

Have I answered your query or am I preaching to the choir ?

Is there more I can do for you ?

P

pk12_2

Employee

@dchoover1 , short answer is YES -- your sale of an asset in Mexico when recognized on your Us tax return should make the foreign taxes paid on the income eligible for US tax credit ( Foreign Tax Credit -- form 1116 ). Note though that any iva paid may not be treated as capital gains tax.

If you want more detailed discussion on this , please add details here or PM me with details ( just NO PII -- Personally Identifiable Information ).

Will come back on hearing from you

D

dchoover1Author

Thanks for your quick reply! I've been claiming the rental income and expenses for the past 10+ years, but last tax year there was no tenant so it could be sold. The MX govmt takes 30% of the profit of the sale. I paid this separately after the sale closed.

P

pk12_2Answer

Employee

@dchoover1 thankyou for the answers to my questions

( a) assuming that you have already reported the sale/disposition of income property ( form 4797 ) and the gain ) per US laws ) have already been included on form 1040.

(b) To claim the foreign tax credit you need to tell TurboTax that you foreign Tax Credit (under Deductions and Credits tab and from the list of "deductions and Credits", choosing Foreign Tax Credit.). It should then walk you through filling out the form 1116. You will need to input Foreign Gross Income ( this generally should be the Gain from disposition of the asset -- actually the lower of gain computed under US and Foreign tax laws ), Foreign Taxes ( Income Taxes paid to a foreign taxing authority under the ambit of the Tax Treaty between US and the other contracting country ).

(c) Note that form 1116 will use a ratiometric methos to allocate your US tax liability on this "doubly taxed" income. While US will recognize the total taxes paid to a foreign taxing authority dollar for dollar, the allowable credit for the US tax year is the lesser of actual amount paid and the US imposed tax on the same income. Thus in the best case, you will get a tax credit equal to the US tax on the same income. You carry back one year or carry forward the unused foreign tax credit --but usually this is available only with foreign income ( same form 1116 computation / limitation comes into play ).

Have I answered your query or am I preaching to the choir ?

Is there more I can do for you ?