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Report Capital Gains (Short and Long term) from foreign(Indian) mutual fund sale in turbotax

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February 24, 2020
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I am a Non-Resident Indian who is a tax resident of USA.

I invested in Indian mutual funds and did a sale of a few units during the year 2019 for which I was charged long term and short term capital gains. On that front, I have a few questions:

1. How do I report this in TurboTax?

2. How do I segregate between short term and long term tax?

3. How do I report the tax I already paid in India and get credit for it?

4. I also wanted to confirm if my tax liability would be as per US tax laws or Indian tax laws for short and long term capital gains.

TurboTax Premier Online

Best answer by pk12_2

@viraj , assuming that you are a resident for tax purposes for the whole year,

(a) you report your sale of Foreign Mutual funds shares just as if these were in the USA --- US tax laws for citizen/Resident/ Resident for tax purposes do not distinguish between such dispositions between US and foreign. US taxes such taxpayers on world income under its laws. You tell TurboTax that you have Barter/Exchange income ( generally reported on 1099-B or Broker's consolidated report ). You have to go through this section of entries carefully because you do not have a 1099-B and because all these share basis is not reported to the IRS. Note that the basis/cost is as of the date bought in US$ of the day-- not today's

(b) it will also ask for when acquired and when disposed and therefore will determine if it short or long term --- held for longer than 12 months ( for long term and otherwise short-term). It is a tabular entry form and all you do is enter the details of each share . Also note here that unless you instructed the broker otherwise and you are bought shares at different times, the default is First in First out

(c) Once you have gone through all the data entry , Turbo Tax will segregate the short term and long term and the gains and losses will be computed , adjusted etc. per the US capital asset rules.

(d) The tax treatment of the disposition i.e of the proceeds would be per the US tax laws without regard to sourcing .

(e) To recognize the taxes paid to India ( not the Held at Source but the final settled amount ), you have to file a form 1116 along with your return --- You will have to tell the TurboTax that you have foreign tax credit -- it will need the final taxes paid, the country where the foreign income occurred and the foreign income associated with the taxes paid. You can file now with the withheld amount and then when the final amount is in place then file and amended return or file for an extension and after the Indian tax is settled then file the US return. Note that if you are itemizing then it is possible to take a deduction for the taxes paid rather than go for the tax credit

Does this answer your query? Do you need more help / information ?

Namaste ji

P

pk12_2Answer

Employee

@viraj , assuming that you are a resident for tax purposes for the whole year,

(a) you report your sale of Foreign Mutual funds shares just as if these were in the USA --- US tax laws for citizen/Resident/ Resident for tax purposes do not distinguish between such dispositions between US and foreign. US taxes such taxpayers on world income under its laws. You tell TurboTax that you have Barter/Exchange income ( generally reported on 1099-B or Broker's consolidated report ). You have to go through this section of entries carefully because you do not have a 1099-B and because all these share basis is not reported to the IRS. Note that the basis/cost is as of the date bought in US$ of the day-- not today's

(b) it will also ask for when acquired and when disposed and therefore will determine if it short or long term --- held for longer than 12 months ( for long term and otherwise short-term). It is a tabular entry form and all you do is enter the details of each share . Also note here that unless you instructed the broker otherwise and you are bought shares at different times, the default is First in First out

(c) Once you have gone through all the data entry , Turbo Tax will segregate the short term and long term and the gains and losses will be computed , adjusted etc. per the US capital asset rules.

(d) The tax treatment of the disposition i.e of the proceeds would be per the US tax laws without regard to sourcing .

(e) To recognize the taxes paid to India ( not the Held at Source but the final settled amount ), you have to file a form 1116 along with your return --- You will have to tell the TurboTax that you have foreign tax credit -- it will need the final taxes paid, the country where the foreign income occurred and the foreign income associated with the taxes paid. You can file now with the withheld amount and then when the final amount is in place then file and amended return or file for an extension and after the Indian tax is settled then file the US return. Note that if you are itemizing then it is possible to take a deduction for the taxes paid rather than go for the tax credit

Does this answer your query? Do you need more help / information ?

Namaste ji

V

virajAuthor

Thank you @pk12_2 for answering my question.

I have a couple of things that need more clarity:

"""

(b) it will also ask for when acquired and when disposed and therefore will determine if it short or long term --- held for longer than 12 months ( for long term and otherwise short-term). It is a tabular entry form and all you do is enter the details of each share . Also note here that unless you instructed the broker otherwise and you are bought shares at different times, the default is First in First out

"""

In the above statement, you mentioned the details of each share. Do you mean details of each transaction because mutual funds in India are considered long term and short term based on the units of the fund purchased and not the shares within the fund?

"""

(e) To recognize the taxes paid to India ( not the Held at Source but the final settled amount ), you have to file a form 1116 along with your return

"""

I have not paid taxes other than the taxes paid at source(TDS). Is the process to get credit for those taxes the same as interest income on bank accounts in foreign countries or is it via form 1116 as you mentioned?

K

klehnhardt

To clarify the cost basis. When you calculate the cost basis when selling mutual funds is different than when you are selling individual stocks. You would use the Average Cost Basis instead of the first-in / first-out method.

To figure your gain or loss using an average basis, you must have acquired the shares (units) at various times and prices.

To calculate average basis:

Add up the cost of all the shares you own in the mutual fund.
Divide that result by the total number of shares you own. This gives you your average per share.
Multiply the average per share by the number of shares sold.

The tax amount you would use when you complete Form 1116. is either the actual tax amount per your tax return or the amount you paid at the source (amount withheld). These amounts represent the estimated taxes on the sale of the mutual fund units you sold.