Question

What forms are required for sale of foreign investment property (never rented) in country w/o tax treaty? Long term capital gains will be paid in foreign country of 20%

Forum|Forum|1 year ago
July 17, 2024
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Can I offset tax paid with us tax due 20%, can I include travel related costs, offset with long term capital losses for stock? what forms and ais there an example?

TurboTax Online

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Opus 17

Employee

If you are a US person for tax purposes (citizen, green card holder, or resident alien) then you file your tax return according to US laws no matter where the income was earned. In this case, you have a capital gains transaction and you will pay capital gains tax if you have a gain (selling price more than cost basis). This will be on schedule D and form 8949, and all versions of the turbotax program on Mac or PC, and the Premium version online, will automatically include the forms.

Your gain is the difference between your selling price and your adjusted cost basis. There are some adjustments to basis allowed, but your travel costs are rarely allowed as adjustments, especially if this was not income-producing property. Cost basis is discussed here.

https://www.irs.gov/pub/irs-pdf/p551.pdf

If you pay tax on the same income to a foreign government, you can claim a deduction or credit to offset the taxes on your US tax return. Assuming that both countries calculate capital gains in the same way, you will either pay 15% or 20% in the US. Your credit will never be more than your US tax would have been. For example, suppose the gain is $100,000, your foreign tax is $20,000 and your US tax is $15,000. Your maximum US credit will be $15,000.

Also beware, not all countries calculate taxable gain in the same way. For example, some countries allow a cost basis adjustment for inflation, the US does not. You calculate your foreign tax according to the laws of that country, and you calculate your US tax based on US tax law, even if the methods for calculating the gain, basis, and adjustments to basis are different.

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pk12_2

Employee

@richardR1 fully agreeing with my colleague @Opus 17 ( for a very complete answer) , just wanted to add that the double taxation relief ( through foreign tax credit) is based on "double Taxation " clause in the tax treaty between US and that other country. Thus if the country where you are paying capital gains tax does NOT have a tax treaty with the US, then there is no real mechanism for claiming foreign tax credit -- form 1116 does ask for foreign income source country. However, if you itemize and use the foreign taxes paid in place of State & Local Taxes -- SALT ( with the current US$10,000 limit ) there is no such question. It is somewhat of an uncharted territory -- I have not seen any case law (tax court) on this, yet.

Also please note that because foreign currency etc. is involved, any financial accounts that you own and / or have signature authority over may come under FBAR ( FinCen form 114 on line only ) and FATCA ( form 8938 ( filed with your return ) may come into play. While these are information only, have no tax implications, willful violation can attract onerous penalties.

pk

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richardR1Author

Hi are you certain on 1116 and can’t claim a credit? I searched websites and irs and there isn’t anything that states a tax treaty is necessary to claim a tax credit paid to a non treaty country . There are benefits to taxpayers but nothing to imply claiming tax credits is not allowed .