Hello Everyone,
I am a US expat residing in the UK, and this applies to any country with a similar tax treaty. I have a bank account and a brokerage account in the US, which typically generate interest, dividends, and capital gains. I report on my UK tax declaration and pay taxes on it in the UK. I can use Form 1116 to get a foreign tax credit on my US tax return. My question is whether in Form 1116 I should choose “c) Passive category income” or “f) Certain income re-sourced by treaty”. Again, note that these are US bank accounts and US brokerages.
My understanding is the following:
- US bank Interest: file 1116 "f) certain income re-sourced by tax treaty"
- Dividends reported on US brokerage: file 1116 "f) certain income re-sourced by tax treaty" – a bit complicated how much to claim back, but that is not my question.
- Capital Gains in stocks held on US brokerage: file 1116, less clear to me which option is correct.
Also, let’s now consider that the bank and brokerage are not in the US but in the foreign country of residence (UK in my case):
4. If these were bank accounts and brokerage in the foreign residence country (I know PFIC problems, I hold none), then for all cases (interest, dividends, capital gains): file 1116 “c) Passive category income”
Are these the correct elections in Form 1116? What should be done in case 3?
Thank you!
