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I am a resident of IL (18 years), green card holder, I sold

my home in India and...
I am a resident of IL (18 years), green card holder, I sold my home in India and paid my taxes there...capital gains taxes. 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. Is that true?
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Answered in 6 hours by:
11/9/2013
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15,888
Experience: 15years with H & R Block. Divisional leader, Instructor
Verified

Robin D. :

Hello and thanks for trusting me to help you today. I am a tax adviser with over 15 years of experience.

Robin D. :

You are required to report the sale on your US return because you are a Green Card holder.

Robin D. :

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.

Robin D. :

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.

Robin D. :

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.

Robin D. :

So you have to report the sale and you may have Capital gains tax but there is releif from Double Taxation.

Robin D. :

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.

Robin D. :

My goal is to give you excellent service. If you are satisfied, please rate me. If you have follow-up questions on this same topic, use the reply box below. To start a new conversation with me on a new topic request me again.

Customer:

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?

Robin D. :

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.

Customer:

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?

Robin D. :

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.

Robin D. :

In the US the states make their own tax laws.

Robin D. :

Those are independent and can be different than federal.

Robin D. :

In the US there are federal taxes and state taxes.

Customer:

But they have to honor a treaty that the country makes with another country

Robin D. :

No they do not. That is just law and can not be argued.

Customer:

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

Robin D. :

One sec.................

Robin D. :

There is no provision in the Illinois Income Tax Act for a deduction (subtraction) from federal adjusted
gross income for foreign taxes paid. If such a deduction were allowed for federal income tax
purposes, such a deduction would already be reflected in the individual's federal adjusted gross
income. However, Illinois allows an individual a foreign tax credit. Section 601(b)(3) of the IITA
provides a credit for tax paid to another state on income also subject to Illinois income tax.

Robin D. :

You see, IL starts with Fed adjusted gross income

Robin D. :

so offering any foreign credit for foreign country taxes paid would be akin to double relief.

Robin D. :

I hope this additional information has helped to explain the US tax system a little more for you.

Customer:

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.?

Customer:

If I got relief through fed and il accepts it then that sindle relief should take care of il tax

Customer:

Why do I have to pay Capital Gains tax 2 times: India and again IL

Robin D. :

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).

Robin D. :

Why do I have to pay Capital Gains tax 2 times: India and again IL

Because the tax laws of your state in the US has no foreign credits for countries

Customer:

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.

Robin D. :

No it is not silent

Robin D. :

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 United
States, or any subdivision of any of the foregoing.

Customer:

Th IL tax code says "There is no foreign tax credit for income tax paid to a foreign country."

Robin D. :

Yes

Customer:

Where ca I find it?

Robin D. :

I sent it to you

Robin D. :

If you want to debate it with teh state

Robin D. :

have your attorney file for a private letter ruling

Customer:

Missed it. Where can I find it?

Robin D. :

Section 601(b)(3)

Robin D. :

Your attorney would know how to file for the private letter ruling but I have to tell you, the response will be no.

Customer:

have your attorney file for a private letter ruling....that would be a legal battle?


Robin D. :

No

Robin D. :

there will be no battle because the tax law already states they are not going to do what you want

Robin D. :

You will simply receive a letter back advising you that the law states they do not do that

Customer:

So what do I gain with the letter?

Customer:

Oh OK

Robin D. :

I wish I could tell you that you do not have to pay tax on the sale but.........

Customer:

Thank you, XXXXX XXXXX been most helpful

Robin D. :

You are most welcome.
Your positive rating is always thanks enough.

Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15,888
Experience: 15years with H & R Block. Divisional leader, Instructor
Verified
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Category: Tax
Satisfied Customers: 15,888
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