How do I report income and tax withheld earned in Puerto Rico?

Question

I received a form 480.6C from the Department of Treasury in Puerto Rico. It was to report withheld tax to non-resident in sale of hereditary property. Amount paid for the sale of property is listed at $4500 and amount withheld is $675. Do I have to file a tax return in Puerto Rico and do I have to report this on my 1040 and state returns?

Thank you in advance for your response.

MatthewD · Answer

Hello Strat355,

If you wish to report that on your tax return, it is generally reported as a capital gain, not just miscellaneous income.

The sale of property is reported as a capital gain on the Stocks or Investments Sold page.  You said, "sale of hereditary property".  You report as the basis, the fair market value at the time you inherited. Often that amount is the amount it sold for.  Since there is no purchase date, answer NO, to the question, "Did you acquire this investment on a specific date?" and check the Inherited button.  Enter the inherited coset (FMV) and the sales proceeds. Nothing was reported to the IRS.

Hope that helps.

Strat335 · Answer

Thank you MatthewD for your quick response. I do not see any specific forms or place asking for worldwide income.  Would I  just include the $4500 in Miscellaneous Income?

Also it looks like I will be refunded from Puerto Rico the $675 withholding so I am sure I don't file for a credit.

MatthewD · Answer

Hello,

Puerto Rico (PR) is a U.S. Territory and has their own tax return.  You must file a return for PR.

If you must also file a Form 1040 and state tax return, then you must report 100% of you worldwide income and claim a credit for foreign taxes paid to PR (even though PR is not a foreign country).

Here is an IRS source with more details.  Topic no. 902, Credits and deductions for taxpayers with Puerto Rican source income exempt from U.S. tax

Unfortunately, we do not support this particular situation in our software or the PR tax return.