I earned money in Spain, but it was already taxed. Will I get a refund if I declare it in the U.S?

[dongiovanni87]

It was taxed with 24%. I was given a document that shows this.

[DaveF1006]

Yes, you will receive a credit for foreign taxes paid to Spain. The credit is issued as non-refundable credit that reduces the tax liability based off of your taxable income for the year. If you are unable to use the full amount of your credit, the unused portion is carried over into subsequent years until the full amount of the credit is used. 

To report this inTurbo Tax:

1. Go to deductions and credits
2. Estimates and other Taxes paid
3. Select Foreign Tax Credit
4. Continue through the questions that determine your eligibility for the credit.

[smdb21]

Thanks for that response.

In my case, I had some income coming from renting an apartment in Spain. Therefore:

- I report the income of that as income from a rental property in Spain

- I paid taxes in Spain, in particular, 24% of that income.

- I report these taxes in TurboTax as a foreign tax credit

However, TurboTax tells me that my itemized deduction is lower than my standard deduction, therefore, nothing changes when adding the foreign tax credit.

Am I doing something wrong? Looks like whether to report the foreign tax credit or not doesn't change anything. Is that possible?

Thank you! 

[ReneeM7122]

No, you're not doing something wrong.  TurboTax tells you whether it's best for you to take the standard deduction or to itemize, and  then it will calculate the foreign tax credit.  It sounds like your credit is limited.  That's ok because you're allowed a carryback and/or carryover of the unused foreign income tax. You can carry back for one year and then carry forward for 10 years the unused foreign tax. For more information on this topic (including taxes paid or accrued in years before 2007), see Publication 514, Foreign Tax Credit for Individuals.

[smdb21]

thank you for your response!

So then, if TurboTax tells me that is better to use the Standard Deduction, then the foreign tax credit is automatically not used and I would be able to carry it over for the next years?

[LinaJ2020]

That is correct.  Since tax credit is used to reduce your tax liability, if you do not have any tax liability, you will not benefit from applying the foreign tax credit.  However, you can carry forward these unused foreign credit to next year.  Make sure to still file a Form 1116 so that your foreign tax credit can be carried forward.  If you do not file Form 1116, you cannot carry your unused foreign tax credit to the future years.

@ smdb21

[smdb21]

Thank you very much for your response.

However, I want to make sure that I am doing it right and I am not entering the numbers twice.

How do I actually report in TurboTax my income from my rental property in Spain? As foreign income or as real state rental income with a foreign address? 

If I do it as rental property in Spain, do I have to fill out the taxes I paid in Spain as real state taxes? if not...where do I report these taxes so that at the end I can fill Form1116? 

[ThomasM125]

You report the rental income the same as if it was earned in the United States. You can deduct the property taxes the same, just convert the amount to dollars. Foreign income tax is different, but property taxes on a rental gets the same treatment as in the US.

You only need form 1116 to get a credit for income taxes paid to a foreign country. So, you don't need to bother with the foreign tax credit section unless you receive wage or similar income from foreign sources, or if you pay foreign income taxes.

[smdb21]

I pay taxes in Spain from the income of the rent, that is why I mentioned it.

So then, where do I incluso the taxes paid? At the foreign tax credit section only or also at the real state taxes section too?

Sorry for the confusion.

[ThomasM125]

No problem. You report the foreign taxes paid on foreign income in the foreign tax credit section only.