# How to apply foreign tax credit to offset foreign main residence sale capital gain tax



## ZeVince (Mar 13, 2019)

I am evaluating the US tax cost of selling my French main residence.

1/ This sale is tax free in France (main residence > 1 year)
2/ After the the 250.000$ exclusion, the long term capital gain is still significant (main residence > 2 years within last 5 years)
3/ I also have a significant available "foreign tax credit" that has accumulated over the past 10 years

My question : is it possible, and how can I use all of my foreign tax credit at once, to offset the capital gain of the sale of this foreign asset.


I am doing a simulation in TT, with the sale being reported in Schedule D as "long-term transactions not reported to you on Form 1099-B".
TT doesn't apply as such the available foreign tax credit in form 1116, amount that is technically sufficient to cover the tax burden of the sale.

Also, is there a way to find the accumulated amount of property depreciation I took over the years ? Does the IRS keep track of it ? Is there a "risk" by not correctly applying it in the calculation of the capital gain.

Finally, any recommendation/advice on how to lower the long term capital gain tax while selling a foreign main residence is more than welcome !

Thank you.


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## 255 (Sep 8, 2018)

@ZeVince -- It appears that you are selling a now personal residence that was a rental property in the past. First off, as far as the sale, it is first listed on IRS form 8949 which then flows to Schedule D before arriving on the 1040.

As you know the FTC is listed on IRS form 1116, before it flows to Schedule 3, then to the 1040.

The depreciation you took on this property should be on your depreciation schedule. U.S. taxes are self reporting and the IRS won't bother, unless there's an audit. Of course, if you've misplaced your records, you can always request tax transcripts for the years in question. Even if you didn't claim the depreciation, the IRS will impute the depreciation you should have taken for the purpose of depreciation recapture. Depreciation recapture is reported on IRS form 4797, which flows to Schedule 1 before arriving on the 1040.

There is a risk of audit if you don't recapture the depreciation -- especially since it appears you took the deduction for 7 years (so they know about it.)

It appears that your FTC is enough to cover your gain, you should be OK. I have zero experience with Turbo Tax, but you might try your simulation, completing as above. Cheers, 255

P.S. The way many RE investors minimize capital gains is by use of an installment sale. Topic No. 705 Installment Sales | Internal Revenue Service In this way, you are only taxed on the capital gains you receive annually -- in other words, you hold the note (safeguarded by placing a lien on the property, until the loan is paid off.)


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