If US stock was sold with US tax withheld, which form do I use for the stock sale and for the foreign tax?

[occasionally-confused]

Do I use the foreign income form for both? Or is there some way to claim capital gains for the stock and get credit for the foreign income tax paid?

[TurboTaxJeffrey · Accepted solution]

I see you are using TurboTax Desktop.  If you are using the Easy Step entry, you will enter the sale of stock in the section reporting Foreign Income.  Click

·         “Income”

·         “T-slips”

·         “Foreign Slip”

·         “Continue.”

In the index in the left column you will then be able to select

“Foreign Income.”

You will then click “Enter New Foreign income.”

You will have to calculate the amount of capital gain and enter it in the appropriate box.  If the purchase and acquisition occurred close enough together that the same exchange rate can be used, you can enter the difference and also include an exchange rate as per the Bank of Canada.  As the income must be reported on the return in Canadian funds, if there are different exchange rates, you may need to calculate the exchange on the purchase and sale yourself, and calculate the Canadian gain/loss.  If that is the case, then use the exchange rate of 1. 

You will also see the box where you can enter the foreign taxes paid.  If there were monies withheld at source, and there is no requirement for you to file a US tax return, then the withholding will be your taxes withheld.  However, especially with capital gains, you will likely have to file a US tax return in order to calculate how much taxes are withheld on the monies.  If that is the case, you would take the tax liability calculated on the US return, and potentially prorate for the capital gain income.

If you are preparing your return in the Forms entry method in TurboTax Desktop, then you will wish to click the “T-Slips” button at the bottom of your screen:

You will have a smaller window open up…make sure “Foreign” is selected in the left column.  Then enter the capital gain/loss accordingly, and the foreign tax paid.

The software will then include the foreign capital gain income at line 174 of the Schedule 3.  The foreign tax paid will be incorporated on the T2209 form to calculate the Foreign Tax Credits. 

If you are using the TurboTax Online software, click the following:

·         “Income”

·         “T-Slips”

·         “Foreign Income”

You will then see where you can enter the foreign capital gains and foreign tax paid.

The software is designed to calculate and optimize any deductions associated with the foreign taxes paid.  Any such deductions will appear at line 232 of your T1.