Question

Foreign Property Sale

Forum|Forum|3 years ago
August 17, 2022
2 replies
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Hi Experts,

I am selling multiple real properties that I held over 10 years in China. I am US citizen. I will have to pay 30% taxes to the Chinese government (roughly about $700k taxes) I know I will have to complete FBAR because the fund will be deposited into my bank account in China before transferring them over to the US. I was wondering how the Foreign Tax Credit work in this situation. Form 1116 must be completed and mailed with my 1040. Is there any Treaty that's in place for this situation? If so, what is it? I am hoping that I could get part of $700k back if that possible.

Thanks in advance 🙂

Bryan

Employee

Employee

@Bryan46 to your specific question : (a) there is a US-China Tax treaty --you will find this at---> https://www.irs.gov/businesses/international-businesses/china-tax-treaty-documents

(b) article 6 and 12 deal with definition and the taxability of gain from sale of real property etc.

(c) Article 22 covers method of elimination/reduction of double taxation.

What all this means is 1. when you sell assets in China, as a citizen/resident of US , you taxed on the gain by China under its laws at the time. US then recognizes this as a credit ( foreign tax credit / deduction) against US liabilities. Note that all US is required to do is recognize the taxes paid to China, not exactly how -- US will use its normal foreign tax credit ( with limitation for the year ) / deduction rules.

Also at these levels , you would have to file both FBAR ( FinCen 114 and FATCA ( IRS 8938 ).

Given the amount of your gain, I would highly recommend services of a CPA/ Tax professional familiar with international taxation to allow you to recoup as much of the foreign tax credit as you can -- selling all together will attract IRS attention and definitely you may not be able to recoup all your foreign taxes paid -- please consider this.

Is there more I can do for you ?

pk