The IRS allows me to treat a foreign tax that I paid as either a Credit, or a Deduction. Taking the credit is clearly better from a federal tax perspective, but in doing this I lose the ability to have it recognized in my California Sate return because CA does not allow such credits. My question is: Can I enter the foreign item as an expense on my state return while keeping it as a credit on my federal return?
Example.
Sale of a Canadian rental property for $1.3M Canadian withholding tax approx. $300K.
- Claiming the foreign tax as a credit results in Federal tax = $25K, CA state tax = $120K
- Claiming the foreign tax as a deduction results in Federal tax = 241K, and State tax = 87K
Best case would be to have the federal tax as a credit and the state tax as a deduction.
If this is allowed, how can I modify my state return (in Turbotax) since it draws data from the federal data.
Thanks for any advice.
