foreign tax credit and sale of foreign residence

I can't face another long tax trawl! I have Federal tax credits, in the General Limitation category.  can they be used to pay capital gain when you sell your house  (primary, only residence, foreign).

I can't face another long tax trawl! I have Federal tax credits, in the General Limitation category.  can they be used to pay capital gain when you sell your house  (primary, only residence, foreign).

As far as I know, if the house is your primary house and the value is below $250,00, you do not need to report it. You need to find out what needed to do if it is over $250,000.

Sale of a UK personal residence can be straightforward, or a can of worms.

If the gain (profit from sale after adjustments) is under $250,000 (MFS, or $500,000 MFJ), the gain is excluded. Additional rules apply to determine if the gain can be excluded. IMHO, if the amount of gain is below the exclusion amount, there is nothing to report. Calculating the profit in relation to the $250,000/$500,000 figure is not straightforward. It is incorrect to take the adjusted sales price in £'s and deduct the adjusted purchase price in £'s and multiply the result by the exchange rate at time of sale. The correct procedure is to take the adjusted price at selling point, and convert that to $US at the exchange rate in force at the time of the sale. The adjusted purchase price (basis) is converted into $US at the exchange rate that was in force at the time of purchase. The calculation of gain is then done using the two $US dollar amounts. A profit of £175,000 (MFS) may result in the total exclusion of gains, or it may result in a large amount of gains which will be subject to tax, all thanks to variances in exchange rates over a number of years.

If the property was purchased prior to May 1997, and the gain from the sale of a previous property was postponed (Form 2119), the basis of the current property (the adjusted purchase price) may be substantially lower.

If there is a gain (income) of over the $250,000 exclusion (MFS), Schedule D must be consulted.

Is the gain active income (general category) or passive (passive category)? My guess would be passive.

From the instructions for Form 1116 (page 3):
Income From Sources Outside the United States
Foreign source income generally includes, but is not limited to, the following:
· Compensation for services performed outside the United States.
· Interest income from a payer located outside the United States.
· Dividends from a corporation incorporated outside the United States.
· Gain on the sale of nondepreciable personal property you sold while maintaining a tax home outside the United States, if you paid a tax of at least 10% of the gain to a foreign country. (emphasis mine) The capital gains tax on the sale of your personal residence (within rules) in the UK is 0%.

So.... I'm not even sure if it can be included on Form 1116. Perhaps those with much greater knowledge than mine can clarify.

I won't even start in relation to how, where, or if UK Stamp Duty (a tax that doesn't exist in the US) can be included (adjustment to purchase price?).

Reader beware!

many thanks for all the help. I live in London where you couldn't get a garden shed for $250k! I'll have a bundle of gain. It doesn't matter if it's foreign property - you just report it like you would if you sold an American house (with the $250k exclusion and after the appropriate currency conversions, as you note). What I don't know is, when you get to the end, General limitation FTC can be used (that's the only kind of FTC I have) - there are some kind of rules about applying the FTC category by category. Aaargh!

As far as I know, FTC or excess FTC (prior years) can only be used/claimed on Form 1116. I don't believe it can be randomly inserted into Schedule D or 1040 to reduce tax. It can't be 'added' to the final results of 1116 on line 47 of form 1040 just to boost the credit higher.