I have a rental condo in Spain for which I have paid 24% taxes. Spain does not allow to take any deductions.
I am not a Real State Agent / Professional. However, I have selected "Active Participant" because I own the place and I make management decisions (approve tenants, set the terms of the contract, etc.).
Although the condo has generated profit, when filling in the Schedule E the profit becomes a loss after adding the expenses and the depreciation ( - 3700 USD).
I wonder whether this loss on Schedule E affects Form 1116. I mean, in section 1, line 2, it asks to include “Expenses definitely related to the income on line 1a” (gross income from the rental in Spain).
My question is: What does it mean by expenses directly related to the income? Should I include the amount of expenses and depreciation that was included in Schedule E? Should I include only the expenses but not the depreciation? Or should I not include anything since no expenses or deductions are allowed in Spain?
In other words, is it compatible to have a loss on Schedule E and at the same time to use an FTC for the rental taxes already paid in Spain? If I include the amount from Schedule E in form 1116, then I do not get an FTC this year but it is carried over for the next year. However, if I do not include the amount from Schedule E, then I do get a reduction in my taxes.
I have read several discussions in the TT community and their answers contradict each other: some say I need to include the expenses and depreciation whereas others say I should leave that space blank.
Here are some examples of what I mean:
@pk
https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/foreign-income-tax-on...
https://ttlc.intuit.com/community/tax-credits-deductions/discussion/form-1116-line-3e-from-rental-in...
@DaveF1006
https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/gross-income-on-forei...
@jtax
https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/when-filling-out-form...
Could you please let me know how should I proceed? I would love to hear from everyone but particularly from @pk , @DaveF1006 and @jtax
Thank you all for your help.
