Foreign Land sold with capital gains

Forum|Forum|1 year ago
January 29, 2025
1 reply
0 views

I am a US resident in the state of IL. In 2024 I sold land inherited in India many years ago. The transaction was complete in September and T.D.S / T.C.S taxes (24%) were deducted from payments, net proceeds were deposited in India's Bank account owned by me then transferred to my US account. Since this land is inherited, the US calculates capital gains on FMV when previous owner died, however India Capital gains were on the entire purchase price. Not sure how to calculate FMV as it was years ago. Since India and US has DTAA, how do I file my Tax Return showing sale of land with capital gains and taxes paid in India?

What I've so far:
Include sale of land - wages and Income - Investment income - form 1099-s

Deduction & credits - estimated taxes paid - foreign taxes. complete form 1116. took credit. selected passive income as type, add country and include foreign taxes on other income.

Best answer by DaveF1006

I'd greatly appreciate an answer to the question above.

grateful for this service, thank you all.

@Dave11_2

Yes, both of these are correct. To answer to question 1, if your only income reported is the sale of this property and if the foreign taxes you paid on it are significant, then your credit is correct. Foreign tax credit or FTC is based on a ratio whereas if you take the amount of foreign taxes and multiply it by (income from foreign sources / total income from all sources). Here is how it works.

If your taxes were $50,000 taxed on a $400,000 sale, your FTC is ($50,000)($400,000/$400,000). In this case, your FTC is $50,000. Now let's assume, you have additional US income of $100,000. The FTC will calculate as follows: ($50,000)$400,000/$500,000). In this case your FTC is $40,000 because of the added $100,000.

The foreign tax credit is a non-refundable credit which will reduce the amount of tax liability to zero or closer to zero. Any excess is treated as a carryover.

In your second question, it depends on how India assessed your Fair Market Value at the time of inheritance. This does conform to the US standard that your Fair Market value is determined at the time of inheritance and not at the time of the sale. In this case, it would be shown at the $74 exchange rate.

DavidD66

You will report the sale of the land in India as the sale of a Capital Asset, which is reported on Form 8949. You will have to report the following:

Description of Property (Something like "25 acres in XYZ India"
Date Acquired - this is the date you inherited the property
Date Sold - Self explanatory
Proceeds - This is your sales price, less any selling costs (e.g. sales commission) You do not reduce the proceeds by the amount of foreign tax paid
Cost or other basis - This is the value of the property at the time you inherited it. If there were any improvements to the property they would be included.

The tax you paid to India should not be reflected in the calculation of your gain. You will be able to take a credit for the foreign tax paid on your US Tax Return. You will have to come up with a reasonable method to determine the fair market value of the property at the time you inherited it, or use a cost basis of zero - $0.00 . Be sure to document and keep your method of determining the fair market value when you inherited the property.

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

RACI625Author

Thank you for the response. I am trying to include in Turbo tax deluxe 2024 however, even though I'm inputting taxes paid on the deductions, I'm still owing taxes on capital gains.

Here's what I've done in Turbo Tax

Under investments, add investment type 1099-S.

Type of Investment - Land (other investment)

How did you receive investment - inherited

date sold -

proceeds - total sales less cost, commission. taxes paid in India not deducted.

fair market value - estimated value when owner passed away.

Review - shows gains

In DEDUCTIONS:

Estimates and Other taxes paid - Foreign taxes

pay foreign taxes or have credits - yes

message saying I need to complete form 1116 if I want to claim tax credit.

taking tax credit

choose income type - Passive Income

Selected country - India

Foreign taxes paid

foreign taxes on other income - put amount paid via TDS

left all else blank (not sure if that's correct)

saved -- taxes owned on capital gains?

DaveF1006

To look at this in detail, we would like to see a diagnostic copy of your return. The information in this file is a sanitized copy meaning there is no personal information, only numbers so that we can troubleshoot in depth, check for calculation issues, and to see how certain items are applied. Here is how to order.

For Turbo Tax online, go to tax tools>tools>share my file with agent. When this is selected, you will receive a token number. Respond back in this thread and tell us what that token number is.

If you use the desktop version, go to the black stripe at the top of the program, click on online, and then select send tax file to agent. Let us know what the token number is.

@RACI625

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"