With regard to the sale of the foreign mutual fund:
Here is the procedure to obtain the foreign tax credit for foreign taxes paid on foreign capital gains.
It is assumed that the reporting of all income including foreign capital gains/losses for U.S. tax purposes has been completed and the next step is to obtain foreign tax credit for foreign taxes paid using form 1116.
Some preliminary work has to be completed. Download the “2019 Instructions for Form 1116” and “Pub 514”.
Open the f1116 instructions and go to page 9. Under the heading “Adjustments to foreign capital gains and losses,” you will be using either worksheet A or B or the worksheet in Pub 514. The instructions will guide you to determine which worksheet to use. Whichever worksheet is used, after completion, you will have the amount to insert into f1116 line 1a if there is a gain or line 5 if there is a loss.
Next go to the foreign tax credit interview. Herein is a screen by screen presentation of a simplified scenario whereby the only income for foreign tax credit is the foreign capital gains.
1. Foreign Tax Credit
Yes
2. Before We Begin
Yes
3. Foreign Taxes
Continue
4. Tell Us About Your Foreign Taxes
Continue
5. Foreign Taxes
Continue
6. Do You Want a Deduction or Credit?
Credit
7. Reporting Foreign Taxes Paid
Continue
8. No Other Income or Expenses
No
9. Completing Forms 1116
Continue
10. Foreign Tax Credit Worksheet
Continue
11. Choose the Income Type
Make the selection then Continue
12. Country Summary
Add a country.
13. Country Name
Select from the list
14. Other Gross Income-Country
If there is a gain from the worksheet:
In the description, enter “Fgn. Cap. Gains.”
Enter the amount from the worksheet.
15. Definitely Related Expenses
Enter any applicable amount.
16. Foreign Losses
If you had a net foreign loss from the worksheet,
enter it here.
17. Foreign Taxes Paid
Enter the amount
18. Country Summary
Done
19. Any Foreign Source Qualified Dividends or Long Term Capital Gains?
Here, Long Term Cap. Gains refers only to capital gain distributions
from a 1099-DIv. Leave it blank.
Continue thru the remaining screens until finished.
With regard to the rental income, do report the income even though no foreign tax was paid. Doing so will help increase the foreign tax credit limit which is favorable.
