pk
Level 15
Level 15

Deductions & credits

@Fred_Fandango   I don't  know  what to say other than 

(a)  TurboTax Foreign Tax Credit form 1116  worksheet pretty much follows the instructions  for form 1116 published by the IRS.

(b)  The frustration that  users feel  in trying to find  items/figures  that TurboTax asks for  are really from the  instructions  themselves.  The root cause , IMHO ,  are statutes  themselves are really not  taxpayer friendly.   And not  to the advantage of the common taxpayer.

(c)  The statutes themselves  section 901 through 906 and specifically section 904, begrudgingly  provides and limits the credit  to  ONLY a maximum  of what US would have  taxed the same  income.  This credit is ONLY applicable  for countries with whom US has tax treaties in effect and with double taxation clause in  effect..

(d) another complication is  that it tries to allow adjustment for cases  where the treaty also calls for a tax rate  of no more than xx%, thus needing adjustment of  the gross foreign income.

(e) On your particular issue of  " adjusted basis" of foreign assets   ( or foreign  source income ),  :

        1.   For most assets ( when you are selling ) basis  does not need adjustment.  However, if the  tax treaty calls for  a fixed rate of taxation then  adjustment is the way to achieve this  effect.  IRS instructions call this adjustment factor.  TubroTax just applies this based on your entry.

         2.  For  Mutual fund  dividends  / interest etc. , generally there is no need for adjustments , except for cases  ( very few ) where the  treat calls for  fixed rate of taxation.

          3.  Note that most Mutual funds  call out the  foreign taxes paid ( your share of the taxes ) but do not directly tell you  your share of the foreign source income -- you have to  get this from the  broker or from the back pages  of the consolidated broker report -- what percentage of  income was from foreign source country.  It is complicated.

 

 Thus   while I sympathize with you about the complexities of filling out the form 1116 / worksheet for form 1116,  I cannot subscribe to the contention the software is  " broken " for  this particular issue   and only on windows version of the product  ( I am not familiar with the screens  & questions  for the  on-line product ) .  I also agree that some of the wording on the windows product could have been better designed  to reduce  confusion.

That is my personal view.

Is there more I can do for you?

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