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Thanks for clarifying how to fill out 8949 correctly. I am taking itemized deductions as opposed to standard.
If I take all of the foreign taxes as a deduction as opposed to a credit, they go on Line 6 of Schedule A.
Is it possible to take foreign tax credit on 1116 for the 1099-DIV and 1099-INT and take foreign tax deduction on Line 6 of Schedule A for the $15K held at source for the house sale?
I have read 1116 instructions and Pub 514 and normally you take either a deduction or a credit for all foreign taxes for that year. However, exceptions apply where you can mix and match in situations where part of the foreign taxes are disallowed as a credit due to certain reasons, in which case you can take those taxes as a deduction. Clearly the $15K is on a long term loss ($50K sale proceeds - $150K basis). Publication 514 mentions one such reason (Covered Asset Acquisition) where the credit may be disallowed and then it can be taken as a deduction. It appears to me this applies to the inherited home sale because for US there is a stepped up cost basis while not so for the foreign country.
Please let me know if this will work. The problem is I cannot understand the referenced material: Section 901(m) and the referenced Treasury Decision. Filling out the Turbo Tax 1116 for the 1099-DIV and 1099-INT credit and Schedule A Worksheet for the $15K deduction are easy - I just need to confirm this is okay.
