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Deductions & credits
@ilenearg , no you are not confusing -- what I understand from your post:
(a)t you have Foreign source incomes and foreign taxes paid for the year 2023.
(b) these are passive in nature
(c) your total foreign taxes paid is a small amount over the safe harbor amount of US$600
(d) the income sources are from UK and Australia, both have Tax treaty with the US and have "double taxation clause" --- I am familiar with the US-UK tax treaty but have to look up that with Australia
(d) because the total foreign taxes paid amount is slightly above the safe harbor limit and using a form 1116 will indeed result in a lesser Foreign Tax Credit, there is now a question as to path forward.
The general requirement and assuming that you & your spouse ( MFJ filing ) are US persons ( citizen/ GreenCard ), is that you must recognize all income no matter the source and country i.e. world income. IRFS gets copies of all information returns ( 1065, K-1 and K-3 etc. ) . Thus IRS knows and looks for all incomes for federal tax purposes.
However, there is no requirement for the tax payer to recognize each all taxes paid to a foreign taxing authority ( either as a deduction or credit against US taxes ). You get to choose what is most advantageous to your situation.
Long story short, you do not have to recognize all the taxes paid. You are quite within the tax laws to recognize a total of up to US$600 from the two constituent K-1/K3s of US$589 and US$65. My suggestion would be recognize only one for US$589 and ignore the US$65 -- I say this because this way you are within the perjury jurat ( the recognition of only part of the US$65 -- while legal, may -- still requires one to replace the US$65 to a different number and claim to be true ).
That is my view.
Is there more I can do for you ?