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Hello and thanks for trusting me to help you today. I am a tax adviser with over 15 years of experience.
You are required to report the sale on your US return because you are a Green Card holder.
Your exemption will only apply if you owned and used that property as your main home for 2 out of the last 5 years prior to the sale. This amount is $250,000 if single and $500,000 if married filing joint.
Any amount over the excluded portion is taxable.If you did not use the property as your main home then you can not exclude any of the gain.
If you also paid tax in India on the sale and have a tax liability in the US on same then you can use the Foreign Tax Credit on your US return.
So you have to report the sale and you may have Capital gains tax but there is releif from Double Taxation.
When you say "My tax attorney says that although I get exemption from the Fed, the state of IL requires me to pay taxes on the gain again" I hope they meant the same I explained.
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This is the home I grew up in and owned it since 1988. I do have Capital gains. I am being told that I get relief only from the Fed from Double Taxation but not from State of IL. Is that true?
Yes, that is true unfortunately. The tax treaty is between the US federal tax and other countries but states in teh US do not have the same agreement.
That does not make sense if the treaty is between 2 countries it should apply to the 2 countries....You are saying that each state has to have a treaty with india?
No, I am saying that the states in the US are not legally bound to a tax treaty that the US federal govt makes with a foreign country.
In the US the states make their own tax laws.
Those are independent and can be different than federal.
In the US there are federal taxes and state taxes.
But they have to honor a treaty that the country makes with another country
No they do not. That is just law and can not be argued.
OK. Where in the IL tax code can I look up that I have to pay Capital Gains tax in IL even if I paid it in India
There is no provision in the Illinois Income Tax Act for a deduction (subtraction) from federal adjustedgross income for foreign taxes paid. If such a deduction were allowed for federal income taxpurposes, such a deduction would already be reflected in the individual's federal adjusted grossincome. However, Illinois allows an individual a foreign tax credit. Section 601(b)(3) of the IITAprovides a credit for tax paid to another state on income also subject to Illinois income tax.
You see, IL starts with Fed adjusted gross income
so offering any foreign credit for foreign country taxes paid would be akin to double relief.
I hope this additional information has helped to explain the US tax system a little more for you.
So Sorry. I am still confused. I am not looking for double relief. I am trying asking why do I have to pay tax twice.?
If I got relief through fed and il accepts it then that sindle relief should take care of il tax
Why do I have to pay Capital Gains tax 2 times: India and again IL
There is no such credit in Illinois. You are a resident of Illinois and you are taxed in that state on your worldwide income. They do not offer a credit for foreign taxes (except for other US states).
Why do I have to pay Capital Gains tax 2 times: India and again ILBecause the tax laws of your state in the US has no foreign credits for countries
So you are saying the tax code it silent regarding foreign tax credit so by default I have to pay the capitals gains tax again.
No it is not silent
There is no foreign tax credit for income tax paid to a foreign country. The credit states it is only allowed for income tax paid to a state of the United States, District of Columbia, Puerto Rico, and any territory or possession of the UnitedStates, or any subdivision of any of the foregoing.
Th IL tax code says "There is no foreign tax credit for income tax paid to a foreign country."
Where ca I find it?
I sent it to you
If you want to debate it with teh state
have your attorney file for a private letter ruling
Missed it. Where can I find it?
Your attorney would know how to file for the private letter ruling but I have to tell you, the response will be no.
have your attorney file for a private letter ruling....that would be a legal battle?
there will be no battle because the tax law already states they are not going to do what you want
You will simply receive a letter back advising you that the law states they do not do that
So what do I gain with the letter?
I wish I could tell you that you do not have to pay tax on the sale but.........
Thank you, XXXXX XXXXX been most helpful
You are most welcome. Your positive rating is always thanks enough.