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Foreign income and taxes paid in foreign county

Forum|Forum|1 year ago
September 13, 2024
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TT Team, I've an income based on selling property in foreign country and have paid taxes for it in foreign country.

How to declare these details for Federal/State in TT 2023 ? Also, is there any possibility of tax credits that can be availed ?

Thanks

Best answer by pk12_2

@msantoin thank you for your answers -- appreciate it.

(a) Since US and India have Tax Treaty in place, you can use the Foreign Tax Credit / Deduction to ameliorate the effects of double taxation. However, because the taxes paid in India is probably larger than safe harbor amount ( US$300 per filer , US$600 in your case , assuming joint filing ), you have to file form 1116 -- the benefit is limited to lesser of actual paid and allocated US taxes on the doubly taxed income.

(b) Tell TurboTax that you have sold/disposed of capital asset --- it will walk you through filling out form 8938 / Schedule D.

(c) Note that for US tax purposes , your basis in the asset is FMV ( Fair Market Value ) at the time of passing of the decedent -- US does not use indexing like India does. To this you can add any improvement expenses over the period of holding. For gain computation Turbo Tax will require Sales proceeds , any sales expenses ( such as commission, recording fees, transfer tax, survey costs etc. etc. ). The Gain is Sales Proceeds LESS Sales Expenses LESS Basis. Since the asset is long-term, you will be able to get the Capital Gains tax rate ( which depends on your AGI -- modified ).

(c) To get to form 1116 , you go to deductions and Credit tab and choose "I will choose what I work on " and this will result in drop down list of credits and deductions . Here , near the bottom you will find foreign tax credit, select this. Note that purposes of this form 1116, your foreign gross income is the same as US Capital gain ( because this is amount that is being doubly taxed or more correctly it is the lesser of US gain and foreign gain ). The foreign tax is the tax you have paid / incurred to India.

Does this make sense ? Is there more I can do for you ? If you need more help, you are quite welcome to add to this thread or PM me .

Namaste ji

pk

A

Anonymous_

Employee

No text available

P

pk12_2

Employee

@msantoin , Please could you provide more details on this transaction:

1. Are you a US person ( citizen / GreenCard / Resident for tax purposes)?

2. your filing status -- single married etc.

3. The property sold -- which country, what was it ( residence / farm land/ rental property etc. etc. ); Was it your own residence prior to sale ? If rented out, then how did you file last year

4. How did you acquire it ( bought / inherited / gift etc. ); if inherited ( from whom, was there a valuation at the time of receipt or at the time of the demise of decedent ); w2hen did you acquire it ?

5. In what state do you reside? Are you married ?

Please answer my questions. I will circle back once I hear from you .

pk

M

msantoinAuthor

Hi @pk12_2 I'm a GC holder, married filing jointly, farmland property sold in 2023 and taxes paid in India. Acquired via inheritance just few years back in 2019/2020. I'm filing taxes from California.

P

pk12_2Answer

Employee

@msantoin thank you for your answers -- appreciate it.

(a) Since US and India have Tax Treaty in place, you can use the Foreign Tax Credit / Deduction to ameliorate the effects of double taxation. However, because the taxes paid in India is probably larger than safe harbor amount ( US$300 per filer , US$600 in your case , assuming joint filing ), you have to file form 1116 -- the benefit is limited to lesser of actual paid and allocated US taxes on the doubly taxed income.

(b) Tell TurboTax that you have sold/disposed of capital asset --- it will walk you through filling out form 8938 / Schedule D.

(c) Note that for US tax purposes , your basis in the asset is FMV ( Fair Market Value ) at the time of passing of the decedent -- US does not use indexing like India does. To this you can add any improvement expenses over the period of holding. For gain computation Turbo Tax will require Sales proceeds , any sales expenses ( such as commission, recording fees, transfer tax, survey costs etc. etc. ). The Gain is Sales Proceeds LESS Sales Expenses LESS Basis. Since the asset is long-term, you will be able to get the Capital Gains tax rate ( which depends on your AGI -- modified ).

(c) To get to form 1116 , you go to deductions and Credit tab and choose "I will choose what I work on " and this will result in drop down list of credits and deductions . Here , near the bottom you will find foreign tax credit, select this. Note that purposes of this form 1116, your foreign gross income is the same as US Capital gain ( because this is amount that is being doubly taxed or more correctly it is the lesser of US gain and foreign gain ). The foreign tax is the tax you have paid / incurred to India.

Does this make sense ? Is there more I can do for you ? If you need more help, you are quite welcome to add to this thread or PM me .

Namaste ji

pk