UK tax paid on UK rental property

[yarmbutts]

In a prior string, Expert AmyC kindly explained about using form 1116 to claim a credit for UK tax paid. This is to avoid being taxed twice on the same income: by the UK and the USA.

However, when I try to use 1116 in TTax it only allows me to enter dividend or other income. There is no path to entering rental property and the UK tax paid.

If anyone can help with a step by step guide on how to do this I will be forever grateful!!

[rjs]

When you posted your question you selected "Not a Product Question," but you are asking for step-by-step instructions. The steps are different depending on what TurboTax product you are using. Is it TurboTax Online or the CD/Download TurboTax software? What edition (Deluxe, Premium, etc.)?

Enter everything using the Step-by-Step interview. Don't try to fill out Form 1116 in forms mode, if that's what you're doing. It's too complicated and error-prone. The Step-by-Step interview will guide you. Read all of the screens carefully and use the help links as needed.

Basically you enter the rental income under "Rental Properties and Royalties," the same as if the property were in the United States, but where it asks for Location you will select "Foreign Country." After you have entered all of the rental income and expense information, go to "Foreign Taxes" under "Deductions & Credits" > "Estimates and Other Taxes Paid." When it asks the income category type, select "Passive income" for rental income. You will enter the amount of income and expenses again, and the amount of U.K. tax that you paid.

If you need further help, besides saying what TurboTax product you are using, please include a link to the post by AmyC that you referenced.

[yarmbutts]

Dear Champ,

Many thanks for your explanation and your understanding.

I am using TTax Premier 2023 CD/Download on my PC. It is the purchased version and sits on my PC.

I am sorry but don't know how to reference the AmyC post. I am not that familiar with the site. However it was under the question:

"I have a rental property in the UK. I have declared on my UK tax return the income. Do I need to report the rental incoming in the US as then I'll be taxed twice" by pravinnaicker on June 4, 2019."

Your step by step explanation was very helpful and I managed to put the UK tax in the correct place and receive the credit. During the process, I somehow lost $110 of foreign tax credit which had come through under a 1099 DIV downloaded from my broker. TTax had initially put this on Schedule 3, Part 1, line 1 "Foreign tax credit. Attach Form 1116 if required" but it had disappeared after following your instructions. I am not complaining though - the higher mumber was the UK tax paid in the rental property and I am please to know how to deal with that.

Thanks

[rjs]

Try deleting the imported 1099-DIV and entering it again manually. Be sure to enter the foreign tax paid in box 7. Then go through the Foreign Taxes interview again and answer the questions about the dividend income.

[yarmbutts]

I didn't get around to deleting the 1099 DIV yet because I had noticed that the GA state tax due had increased substantially after I successfully put the UK tax in the correct place. I seem to have gained in one return and lost in another.

 Does that sound right? Is it due to entering the passive income again from the rental in the Form 1116 Foreign Tax Credit as well as on Schedule E? Or, have I made an error and should repeat going through the step by step instructions you offered?

Thanks.

[rjs]

I'm not sure what you had entered before you "put the UK tax in the correct place." Had you already entered the rental income on Schedule E? If not, when you entered it, it would be included in your Georgia income (assuming you are a Georgia resident). Without something like a foreign tax credit on the Georgia return, that would certainly increase your Georgia tax. I'm not familiar with Georgia taxes. I don't know if Georgia has an equivalent of the federal foreign tax credit to offset Georgia tax on foreign income on which foreign tax was paid, or whether the federal foreign tax credit flows to the Georgia tax return in any way. Maybe @DoninGA can help with this.

[DoninGA]

Georgia does not have a comparable foreign tax credit in their tax code.  Whatever was changed on the federal tax return apparently increased the federal adjusted gross income which flows to the Georgia tax return and increased the Georgia tax liability.

[yarmbutts]

Champ: Had you already entered the rental income on Schedule E? 

Me: Yes, I had completed the return with everything needed on Schedule E. I stuck the UK tax on Schedule 3, Part 1, line 6z and called it "UK tax paid on rental property." It was denied by the IRS.

[yarmbutts]

Dear All,

Apologies for my absence on this topic. I am not done! Just after my last post we were smacked hard by Hurricane Helene, lost power and all communications and had trees down all over the place. No-one was hurt around us.

We are still in the throes of recovery, and it may be a while before I can return to my issue here.

I also notice that I thought I was communicating to one person called Champ! Sorry about that but thanks to everyone for their contributions.