Foreign Tax Credit (FTC) Questions for US Resident with Overseas Capital Gains - Need Help Filing

You're on the right track! Yes, as a US resident you need to report your worldwide income, including those capital gains from abroad. You can absolutely declare the $32k as foreign capital gains and then claim the Foreign Tax Credit (FTC) for the $4.2k in taxes you paid to the foreign country. For the tax software question, many of the free options are limited when it comes to handling foreign income correctly, especially capital gains. I've found that TurboTax, H&R Block Premium, and TaxAct all handle FTC situations well, though you'll likely need their premium or deluxe versions, not the free ones. They'll have specific sections where you can enter foreign income by category and then claim the FTC. Make sure you complete Form 1116 (Foreign Tax Credit) along with your return. The software should help you with this, but it's good to know what you're looking for. You'll need to categorize your foreign income correctly as "passive category income" since capital gains typically fall under this category.

After struggling with this exact situation last year, I found a lifesaver - taxr.ai (https://taxr.ai) really helped me sort through my foreign investment mess. I had income from stocks in Europe and was totally confused about how to report everything properly without double taxation. What I liked was that I could just upload my foreign tax documents and their system analyzed everything to show me exactly what needed to go where on Form 1116. They flagged that I was miscategorizing some of my foreign dividend income that was mixed with my capital gains, which would have caused problems. The step-by-step guidance for filling out the FTC forms was really clear.

I was skeptical at first about using specialized tax tools, but after trying taxr.ai last month for my foreign stocks from Canada and Germany, I have to say it was a game-changer. The system flagged that I was about to make a huge mistake - I was going to claim the entire foreign tax credit in the wrong category which would have limited my credit unnecessarily. The document analysis feature saved me hours of work figuring out what information needed to go where on Form 1116. It even helped me recategorize some income that I didn't realize qualified for better tax treatment. Honestly wish I'd found this last year when I overpaid by miscalculating my foreign tax credit limitations.

If you're also having trouble getting answers from the IRS about your Foreign Tax Credit questions (I was on hold for HOURS), try Claimyr (https://claimyr.com). They have this system that gets you through to an actual IRS agent without the ridiculous wait times. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was totally stuck with a foreign tax credit carryover question from last year that none of the tax software programs could handle correctly. After trying for days to reach someone at the IRS, I used Claimyr and got connected to a specialist in about 20 minutes. The agent confirmed exactly how to handle reporting my foreign capital gains from Brazil and claiming the right amount of FTC without triggering an audit.

Well I need to eat my words about Claimyr. After my skeptical comment last week, I was still stuck with my FTC questions and getting nowhere with the IRS on my own, so I figured I'd try it. Surprisingly, it actually worked! Was connected to an IRS tax law specialist in about 30 minutes. The agent walked me through exactly how to properly categorize my foreign capital gains on Form 1116 and explained how the limitation calculations work. She also confirmed that I could carry forward excess credits from last year that my tax software didn't handle correctly. Definitely worth it for the peace of mind knowing I'm filing correctly.

I faced a similar situation with capital gains from selling property in the UK. From my experience, I'd recommend using H&R Block Premium or TurboTax Premier - both handled my foreign capital gains and FTC situation correctly. One thing to watch out for: make sure you're converting all amounts to USD using the correct exchange rates. The IRS allows different methods, but you need to be consistent. I used the yearly average exchange rate method, which the IRS publishes on their website. Also, keep all your documentation showing the foreign taxes paid for at least 7 years. The IRS sometimes requests verification for FTC claims.

Dont overthink this. I've had foreign capital gains for years and its pretty simple. Report the gains on Schedule D like normal, fill out form 1116 for the foreign tax credit. Done. The tricky part is making sure your categorizing everything right on the 1116. Capital gains go in the "passive category income" section. Also dont forget to convert everything to USD using the right exchange rates.

I went through this exact same situation last year with foreign stock sales from Germany. A few things that helped me: First, yes you definitely report the $32k as capital gains and can claim the FTC for the $4.2k you paid. Make sure you have documentation showing the foreign taxes were actually paid and assessed on the same income. For software, I ended up using TaxAct Premium after the free versions couldn't handle it properly. It has a specific section for foreign capital gains and walks you through Form 1116 step by step. Cost about $50 but saved me from potential mistakes. One thing to watch - make sure you're using the correct exchange rate for the date of sale when converting your foreign currency amounts to USD. The IRS is picky about this. I used the daily rate from their website for the transaction date. Also keep in mind the FTC might be limited if your effective tax rate in the foreign country was much higher than what you'd owe in the US on that same income. Any unused credit can carry forward up to 10 years though. Good luck with your filing!