I have sold property in a foreign country. Where do i report the sale and the estimated taxes paid to the foreign government and get a credit for it ?

Forum|Forum|1 year ago
January 14, 2025
1 reply
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The foreign government has its own form as recepit for estimated taxes paid. Also , Is there a specific edition, like Basic, Deluxe or Premier I should be using ?

Best answer by pk12_2

@laks

Very generally the recognition of disposition of a foreign asset ( i.e. situated in a foreign country is the same as if the asset was located domestic. However, there are some ands, ifs and buts.

(a) Which country was the property located in?

(b) How ( purchase/ gift / inheritance etc. ) did you acquire the asset, when did you acquire the asset? When did you dispose off the asset ?

(d) What is your immigration status ? If not a citizen, when did you enter this country and with which visa ?

Please answer my questions. I will circle back once I hear from. Note that if the answers get into regions that may not be of general interest or for reasons of privacy , you can PM me ( just NO PII -- Personally Identifiable Information, please ).

Look forward to hearing from you

pk12_2Answer

Employee

@laks

Very generally the recognition of disposition of a foreign asset ( i.e. situated in a foreign country is the same as if the asset was located domestic. However, there are some ands, ifs and buts.

(a) Which country was the property located in?

(b) How ( purchase/ gift / inheritance etc. ) did you acquire the asset, when did you acquire the asset? When did you dispose off the asset ?

(d) What is your immigration status ? If not a citizen, when did you enter this country and with which visa ?

Look forward to hearing from you

laksAuthor

Hi PK

Thank you for the quick response and apologies for being in tardy in responding. Here is the answer to some of the information that you requested

(a) Which country was the property located in?

India

(b) How ( purchase/ gift / inheritance etc. ) did you acquire the asset, when did you acquire the asset? When did you dispose off the asset ?

I purchased it. The money handed over to the developer on a schedule from 1998 and the official registered agreement was made in 2006. I disposed of the asset in 2024.

My parents lived there for a while. I did rent it out for 10 years or so, declared the rental income on 1040 but never claimed any depreciation on the property, if that is relevant.

(d) What is your immigration status ? If not a citizen, when did you enter this country and with which visa ?

Let me provide as much details as I think may be relevant. I was on a H1-B visa when the sale deed was signed and a green card holder at the time the asset was handed over to me. I am a citizen currently.

Let me know if you need anything else from me.

pk12_2

Employee

@laks thank you very much for all the information you provided. The pertinent items are

1. you are a US person and have been so during this whole episode.

2. You bought the property in 2006 ( closed / beneficial occupancy )

3. From 2006 through 2014 you used the prop. for personal use.

4. 2015 through 2024 you used the prop. as income property, recognized for US purposes on Schedule-E

5. You did not use any allowable depreciation. Note that for US purposes , it is not material whether you actually used the depreciation. The fact that it was allowable means that you have accumulated

depreciation for purposes of gain/loss computation.

6 You can go back for all those years and correct the returns to include the depreciation and hopefully you can create suspended losses ( again this depends on exact facts and circumstances ), but obviously if you were in a refund position ( already or because of the depreciation ) then only the last two years would get you any monies back.

So for US purposes and only for 2024, you tell TurboTax that the property on Schedule-E has been disposed off. This should trigger the interview for form 4797 ( sale of income asset ). Note that

(a) your basis = Acquistion cost + cost of any improvements over the years

(b) your adjusted basis = Basis LESS accumulated allowable depreciation ( whether taken or not )

(d) Sales Proceeds = Sales Price LESS sales prep costs + all sales related costs ( transfer tax, commission, suspended losses etc. etc. )

(f) Taxation of the gain --- all gains up to and including accumulated depreciation is treated as Ordinary gain & Taxed at your marginal rate; the rest of the gain is treated as Capital gain.

Another item to note is that if India has taxed you on the gain on the sale of this property ( the final settled amount , not the TDS amount ), this may be eligible for foreign tax credit. The allowable credit for the year would be lesser of actually paid or the amount US has taxed on the same gain. Here you have to be careful that you do include the correct foreign source amount and the correct foreign tax , using form 1116.

Does this help ? Is there more I can do for you ?

Namaste ji