According to the Form 1116 instructions: "You can't take a credit for the following foreign taxes. 1. Taxes paid to a foreign country that you don't legally owe, including amounts eligible for refund by the foreign country. [...] Example. Country X withholds $25 of tax from a payment made to you. Under the income tax treaty between the United States and Country X, you owe only $15 and can claim a refund from Country X for the other $10. Only $15 is eligible for the foreign tax credit (whether or not you apply for a refund)."
And according to the Form 1040 instructions for Schedule 3, Line 1: "You don’t have to complete Form 1116 to take this credit if all of the following apply. [...] 5. All of your foreign taxes were: a. Legally owed and not eligible for a refund or reduced tax rate under a tax treaty."
Question: When computing the foreign tax credit, does TurboTax support excluding the portion of foreign tax paid that is eligible for a refund or reduced tax rate under a tax treaty?
In my case, I own Ferrari stock, and I received a dividend (less than $300) of which 26% was withheld for foreign tax. Due to a tax treaty between the United States and Italy, I believe I'm only entitled to a foreign tax credit of 15% of the dividend amount. However, TurboTax didn't ask me about the country that withheld the tax, and it is claiming a foreign tax credit for the full amount of taxes paid.
