Get your taxes done using TurboTax

Yes, now I agree you are on the right track when you mention income resourced by treaty.  Under this provision, U.S. source income is treated as foreign source income under an applicable income tax treaty. This can help prevent double taxation by allowing you to claim a foreign tax credit for taxes paid to a foreign country on that income. Since the US has a tax treaty with Portugal and Italy, you may use this provision. Here is how to report.

1. Go to Federal
2. Deductions and credits 
3. Estimate and other taxes paid 
4. Foreign Tax Credit>start or revisit
5. Now navigate through the screens until it says Tell us about your foreign taxes. Select none of these apply.
6.  Then navigate two more screens indicating you wish to take the credit.
7. Then navigate to the screen where it says no other income and expenses, select no.
8. In two screens, it will ask the income type, here you will select income sourced by treaty
9. Next under country summary, select Portugal in the drop-down
10. Select edit next to Portugal or Italy
11. First screen will ask for gross income. Here total up all the income sources you were taxed on in Italy or Portugal. Don't be confused by the verbiage here because we have now resourced the income to Portugal or Italy.
12. Now skip screens until you have reached a screen to report foreign taxes. First say no.  You have foreign taxes paid on rental, royalty or other income.
13. Now you will report the total of your foreign taxes paid on other income.
14. Now you are done with the country.
15. Now navigate through the Foreign Tax section and not make any more entries, except for the country of residence.  Here you you will say Portugal or Italy.

Don't do anything like creating fictious foreign tax paid in 1099's. Just keep it simple and follow steps I have outlined.  one thing i need to mention before i post. Your foreign tax credit is limited by the amount of your tax liability. This is done by taking your adjusted gross income for the year and subtracting your standard or itemized deduction.  Your tax liability is based off of the taxable amount that is remaining. If the foreign taxes exceed the tax liability amount, then you will only receive credit up to the tax liability amount and the excess can be carried back one year, then carried forward for the next ten years.

For an example, if your adjusted gross income was $20,000 and your standard deduction is $16,200.  Your taxable income is $3800 and the tax liability is $380. if your foreign tax is $1000, you will only receive credit for $380 and $620 would be a carryover.  i only mention this in case if you receive a credit for less than the foreign taxes paid for the year.

[Edited 02/25/25|2:15 pm PST]

@retailboy99 

@gbriel