I am an American resident in Germany. I receive an IRA distribution , which is taxed by Germany. Can I take a tx credit / deduction for these Gm. taxes?

[rlp6]

turbotax seems to hinge on "foreign income", which this isn't, but Germany taxes it anyway.  The way I read the tax treaty it should be taxed by the Germans and refunded in some amount by the Americans (so as not to be  double taxed on the same thing).

[ReneeM7122]

You are correct.  There is a tax treaty between the US and Germany, and you can take the Foreign Tax Credit to offsest the tax that you paid to Germany on your IRA.  That's done on Form 1116.

Here's how to get to Form 1116 for 2020:

1. Make sure you've entered all your foreign income.
2. From within your return, search for foreign tax credit and select the Jump to link in the search results.
3. Answer Yes to Did you pay foreign taxes in 2020 or have credits to use from a prior year?
4. Follow the instructions to get the credit or deduction.

There's a deduction available as well as well as a credit but in most cases, taking the credit works out better. We'll help you decide which one's best for you when you go through this section.

If you choose to take the credit (most people do), we'll attach Form 1116, Foreign Tax Credit if your situation requires it.

[rlp6]

Thank you very much!

I was getting hung up on the phrase "foreign income" (because it's US funds taken from a US account) but if I'm understanding correctly I think what I need to do is check "income re-sourced by treaty". 

I'm still working my way through but this has been a big help.  The relevant turbotax forms are not super intuitive but with the 1116 in front of me I'm reverse engineering it.

Rich

[digitalcop66]

Hello Renee, (I hope that is your name),

My name is Eric Hueckel, I am an American living in Germany and want to take an IRA distribution,

with regard to the post I found which you answered that covers my case,
it really surprised me that I need to pay taxes in Germany and then file the 1116

form with the IRS to avoid double taxation.  Do you know if is this still the case ?

I most definitely plan on using Turbo tax to solve this problem when I take a distribution,
used your software many years when I lived in Colorado, and am very glad that your forum is so helpful.

Many thanks in advance for your help !!

Best regards,
Eric

[SusanY1]

Yes, you will need to pay the taxes in Germany and then ask for a credit using both Form 1116 (the foreign tax credit form) and Form 8833 (Treaty-Based Return Position Disclosure).  

Since the income is "re-sourced by Treaty", and not income earned in Germany, the Treaty position lets the IRS know the reason you are claiming a foreign tax credit on US-source income.  

Form 8833 isn't included in TurboTax, but since it doesn't calculate your tax and only communicates your treaty position to the IRS, you could fill it out manually and attach it a paper-filed return.  However, at least for your first year filing in this manner we do encourage you to seek advice of a tax professional with experience filing with both of these forms. 

[digitalcop66]

Many thanks for your help SusanY1 !!

Best regards,
Eric Hueckel

[golfhacker1]

Hi Susan,

I am in a similar situation wanting to withdrawal some of my IRA this year. If I understand you correctly I should withhold nothing in the US, pay the tax in Germany and then use foreign tax credits (Form 1116) and fill out Form 8833 when submitting my 2025 return. Is that correct?

[DaveF1006]

Yes, this is correct.