@jtax
Thank you very much for your detailed response. I appreciate your attention to this.
To be frank, I follow some of your points and am somewhat divided on how to go ahead with this now.
There is one more thing that I would like to share to illustrate a case that I think this form has an issue in handling (unless I am using it incorrectly). Let us consider the following case:
Foreign-sourced rental income: $35,000
Expenses on the above income: $45,000
Foreign interest income: $10,000
Let us assume that no rental losses were allowed in the US return due to Passive Activity Loss limitations, and hence no US tax savings from the rental loss. On the other hand, US tax applied to the foreign interest income of $10k. So, from what I understand what Form 1116 does is that, under the assumption that rental and interest income are both categorized as "passive", it will simply calculate zero FTC for the above scenario, as a result of allowing for "unallowed" rental losses, as if they generated any US tax savings. This creates an unfair treatment of the interest income by not allowing any credit for the taxes paid (to both countries) on that income.
Please let me know if the above makes sense, and if it does if you see any errors in my application of this process. If the followed process is correct, considering the main purpose of the form, probably a more accurate way is to only include the rental expenses to the point they reduced the US taxes in the current return and not beyond that (i.e. up to the rental income in the above scenario).
I look forward to hearing your thoughts on this. Thank you!
