Double-taxing foreign capital gains?

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bh1
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Double-taxing foreign capital gains?

Post by bh1 »

Does the principle of not double-taxing foreign income apply to capital gains? Specifically, if I sell a house in a foreign country and pay capital-gain tax there, does that reduce the capital gains on my US taxes?
lakpr
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Re: Double-taxing foreign capital gains?

Post by lakpr »

bh1 wrote: Fri Jun 02, 2023 10:22 am Does the principle of not double-taxing foreign income apply to capital gains? Specifically, if I sell a house in a foreign country and pay capital-gain tax there, does that reduce the capital gains on my US taxes?
I believe you will have to claim a tax credit against your US taxes in this scenario.
jebmke
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Re: Double-taxing foreign capital gains?

Post by jebmke »

lakpr wrote: Fri Jun 02, 2023 10:24 am
bh1 wrote: Fri Jun 02, 2023 10:22 am Does the principle of not double-taxing foreign income apply to capital gains? Specifically, if I sell a house in a foreign country and pay capital-gain tax there, does that reduce the capital gains on my US taxes?
I believe you will have to claim a tax credit against your US taxes in this scenario.
Yes, I think that is the case. And like many credits, you may or may not be kept whole.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
Topic Author
bh1
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Re: Double-taxing foreign capital gains?

Post by bh1 »

lakpr wrote: Fri Jun 02, 2023 10:24 am I believe you will have to claim a tax credit against your US taxes in this scenario.
jebmke wrote: Fri Jun 02, 2023 10:25 am Yes, I think that is the case. And like many credits, you may or may not be kept whole.
Thank you, both. I get the feeling that this will break TurboTax.
PCPilot
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Re: Double-taxing foreign capital gains?

Post by PCPilot »

bh1 wrote: Fri Jun 02, 2023 10:33 amThank you, both. I get the feeling that this will break TurboTax.
I wouldn't be so pessimistic. Turbotax has handled my cash out of a Canadian RRSP and Canadian dividends pretty easily for over a decade. Out of curiosity, what is the country involved and is there a tax treaty?
jebmke
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Re: Double-taxing foreign capital gains?

Post by jebmke »

TT should be able to handle Form 1116 which I think is what would be needed.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
Topic Author
bh1
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Re: Double-taxing foreign capital gains?

Post by bh1 »

PCPilot wrote: Fri Jun 02, 2023 11:02 am
bh1 wrote: Fri Jun 02, 2023 10:33 amThank you, both. I get the feeling that this will break TurboTax.
I wouldn't be so pessimistic. Turbotax has handled my cash out of a Canadian RRSP and Canadian dividends pretty easily for over a decade. Out of curiosity, what is the country involved and is there a tax treaty?
China, as in PRC.
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grabiner
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Re: Double-taxing foreign capital gains?

Post by grabiner »

jebmke wrote: Fri Jun 02, 2023 11:59 am TT should be able to handle Form 1116 which I think is what would be needed.
However, tax software does have problems getting the form right; The Finance Buff has an article on this. Turbotax seems to usually get things right, but TurboTax is misleading for foreign tax credit work is my own example of how it asked me the wrong question.

If you use the download version of TurboTax, you can (and should) check the forms yourself before filing. This applies not just to Form 1116; checking the forms allows you to identify data-entry errors, and bugs in the software.
Wiki David Grabiner
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