Investors & landlords

No.  Reporting this is an investment sale to appear on the 8949, and then reporting it again for Form 1116 purposes is not double-counting income. Reporting it again in Form 1116 is informational for computing the foreign tax credit but does not get reported again in your return.

Now, you would like to know the reason why you weren't given full foreign tax credit. According to the IRS, Your foreign tax credit cannot be more than your total U.S. tax liability multiplied by a fraction. The numerator of the fraction is your taxable income from sources outside the United States. The denominator is your total taxable income from U.S. and foreign sources. Here is an example on how this works.

If your tax liability on Line 24 of your 1040 is $5000, your foreign income is $11,728, and your total income, foreign and US income, is $50,000. The foreign tax that can be claimed for this year is ($5000)($11,728/$50,000)=$1173. This is the maximum amount of credit that can be claimed this year. Any excess foreign tax credit can either be carried back to a previous year or carried forward for 10 years to offset any past or future foreign tax credit paid on foreign income. So if you had a $5000 credit, $1173 will be credited this year while $3827 will be a carryback or carryforward, or both.

In your case, you received $2415 and $5742 will be a carryover, carryback, or both. Now to report your investment sale, here is how to report if you haven't already.

1. open your return.
2. Go to federal
3. wages and income
4. Scroll down the screen until to come to the section “Investment Income”
5. Choose “Stocks, Mutual Funds, Bonds, Other” and select “start’  
6. The first screen will ask if you sold any investments during the current tax year (This includes any sale of real property held as an investment property so answer “yes” to this question)
7. Since you did not receive a 1099-B, answer “no” to the 1099-B question
8. Choose type of investment you sold - select everything else
9. What type of investment other
10. How did you receive the investment. Indicate you purchased it.
11. On what did did you receive this investment.  The date of purchase of the land.
12. Some basic information:
    1. Description –  Usually the address of the property sold
    2. Sales Proceeds –  The amount you received for the sale minus settlement expenses when you sold the home)
    3. Date Sold – Date you sold the property
    4. Cost or other basis  (This is where you put the purchase price of the land plus the settlement expenses when you bought the home plus any improvements to the property.)

I am not going to tell you how to enter the Foreign Tax Credit Section since it looks like you have already determined the amount.   Just remember to record the gross amount of the sale in this section to accurately determine the credit.

Just remember, any gross amounts reported in your Foreign Tax Credit section does not get added again as income.  The only income reported on your return is reported as an investment sale.

Foreign Tax Credit

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