topic Income Taxes Withheld and Sales Expenses for Inherited House in Foreign Country in Get your taxes done using TurboTax

Income Taxes Withheld and Sales Expenses for Inherited House in Foreign Country

JackSpaniel — Sun, 08 Feb 2026 16:38:23 GMT

I sold an inherited house in a foreign country that was unoccupied for 1 1/2 years between the parent's death and sale. I got an appraisal done to get the FMV on deceased's date of death. This came at around $150K (just to use round numbers as an example). I paid all utility bills and house taxes for the 1 1/2 year period. I spent money traveling to the foreign country and I sold the house for a selling price of $50K at a significant loss just to get rid of it. However, I only received $35K at sale, $15K worth of foreign income taxes in that country were deducted at source. I have entered the following so far in the Investment Income EasyStep:

I have the following questions:

For proceeds, should I enter $50K (selling price) or $35K (actual amount received)? If I enter $50K, how do I claim credit for the $15K in foreign income taxes paid (if this is even possible in my situation)?
Where can I find what sales expenses are deductible? I found IRS publications explaining deductible sales expenses for your own house and rental property but less clear to me what is deductible for inherited property. Any links appreciated. More specifically, which of the following are deductible: travel (tickets, lodging, boarding, local transportation), utilities for the 1 1/2 years, house taxes, appraisal to get FMV?

Thank you so much in advance for your help! I have received awesome answers here, I'm sure you'll help me get through this as well.

Re: Taxes Withheld and Sales Expenses for Inherited House in Foreign Country

DaveF1006 — Mon, 09 Feb 2026 19:21:53 GMT

For the taxes paid to other countries, you would need to fill out the Foreign Tax Credit section of the return. This section is different from the investment section where you reported the sale. I will list the steps at the bottom of this response.

For the first question, you will enter $50K for the amount of proceeds. As I mentioned, a foreign tax credit will be applied when you complete the foreign tax section on your return.

When you sell an inherited house, the tax rules combine aspects of both investment property and capital asset guidelines are the same, no matter where the house is. The key to your question is distinguishing between Expenses of Sale and Holding Costs.

For example, your appraisal for FMV purposes, improvements, and selling costs are added to the basis of your house to reduce its capital gains. Any travel expenses, utilities, house taxes, lodging, boarding, and local transportation aren't.

You are eligible for a foreign tax credit or an itemized deduction for the taxes paid. Here is how to report in TurboTax.

Go to Federal
Go to Deductions & Credits.
Scroll down to Estimates and Other Taxes Paid.
Click Start/Revisit next to Foreign Taxes.
Begin filling out the section. When it asks you for the type of income, indicate it is passive income.

Here are some links that will prove helpful to you.

IRS Publication 551: See the section "Property Acquired from a Decedent."

IRS Publication 550: See "Capital Gains and Losses" for how to report the sale.

IRS Publication 523: While this is for primary homes, the "Selling Expenses" list on page 12 is a great checklist for what you can subtract from your sale price.

As I mentioned before, the reporting rules are the same no matter where the property is located. even on foreign soil. Aslo uncheck the box that says you have more information to report. You have no more information to report in the remainder of that section other than the information you have already recorded.

Re: Taxes Withheld and Sales Expenses for Inherited House in Foreign Country

JackSpaniel — Tue, 10 Feb 2026 20:18:37 GMT

I have three different types of foreign taxes I paid last year. The ones reported on 1099-DIV ($1,000), ones reported on a foreign equivalent of 1099-INT ($500), and then the foreign taxes withheld on sale of the money losing inherited property ($15,000) (I have a 1099-S equivalent documentation from the foreign country for this sale.)

First:

Please confirm this is all PASSIVE CATEGORY INCOME. I don't see how the inherited house sale is GENERAL CATEGORY INCOME based on 1116 instructions.

Second:

When answering interview questions regarding the foreign tax credit, the 1099-DIV and pretend 1099-INT info carries over into 1116 automatically. However, for the sale of the house, which I have already reported on 8949, the capital loss information obviously does NOT carry into 1116. I can add $15,000 under passive income category for that country as other foreign taxes paid. However, my question is this: do I need to add the capital loss information of $100,000 from 8949 for inherited house sale manually into the following 1116 interview question (see below)? This results in a complete inability to claim any foreign tax credit this year, with a carry over into 10 years which I will not even use a fraction of as I am closing the bank account in the foreign country (done there) and my 1099-DIV foreign taxes are small year to year. I know I have the option of deduction vs. credit, but first I need to know the answer to my question so I am thinking about this correctly.

@DaveF1006

@ReneV4

@AbrahamT

Re: Taxes Withheld and Sales Expenses for Inherited House in Foreign Country

DaveF1006 — Tue, 10 Feb 2026 23:50:00 GMT

Yes, this is all considered Passive Category Income. Also, you must include that $100,000 of foreign loss in your Form 1116 calculation, even if it means you can't use the credit this year.

Your Foreign Tax Credit is limited by a ratio. That ratio is (Foreign Taxable Income) /(Worldwide taxable income) X US Tax Liability. The problem is if you have $1500 of passive income from dividends but a $100,000 capital loss from the house in the same category, your net foreign source income for that category becomes zero (or negative). When the numerator of that fraction is zero, your allowable credit for the year is zero.

You can claim the foreign taxes as an itemized deduction on your return, as this may add some relief to your tax situation. This depends on whether your itemized deductions are more than your standard deduction for the year. If they are not, it may not make a difference.

@JackSpaniel

Re: Taxes Withheld and Sales Expenses for Inherited House in Foreign Country

JackSpaniel — Wed, 11 Feb 2026 13:24:40 GMT

@DaveF1006

Thank you very much. I still have questions:

1. Is the sale of inherited real estate in a foreign country considered "foreign source income" or is it US source income?

2. Assuming answer is yes. For 1099-INT and 1099-DIV, there are fields available to indicate foreign taxes paid and this information transfers automatically into 1116. However, for the 1099-S (foreign equivalent), there is no field available for foreign taxes paid. It is easy to report the sale details (and loss or gain) in the Investments section which populates 8949 in a matter of seconds. When going to Deductions and Credits section and starting the Foreign Tax interview, I see there are two pre-populated columns: RIC and xxx Country. The xxx Country is where the 1099-INT is from, and RIC is due to the 1099-DIV. Please guide me step by step how to go through the interview for the sale of the inherited real estate. It is also in xxx Country. Please provide an answer that is good irrespective of whether it is a gain or a loss - let's assume for this question I want to pursue the credit option, not the deduction. Please assume the following numbers:

Cost Basis: $p

Sale Proceeds: $q

Selling Expenses: $r

Foreign Tax Withheld: $s

Date of death: June 30, 2024

Date of sale: July 31, 2025

Please also note that the inherited property sale is considered Long Term Gain (or Loss), so the US taxation for it is favorable compared to 1099-INT taxes.

Thanks so much once again.

Re: Taxes Withheld and Sales Expenses for Inherited House in Foreign Country

DaveF1006 — Thu, 12 Feb 2026 00:45:14 GMT

Yes, this is foreign-sourced income. Here is how you will complete reporting the Foreign Tax Credit. I assume you have already reported this as income because we addressed that earlier. Now you need to fill form 1116 to receive your credit.

TurboTax doesn't save this portion into the Form 1116 like it does for Dividends and interest, so you need to manually record this in the Foreign Tax Credit section.

As you navigate through the foreign tax credit section, your dividend and interest information is already reported. You need to report the sale of the house and report the gross amount of the proceeds..

Go to Deductions & Credits
Estimates and Other Taxes Paid > Foreign Tax Credit.
Follow the prompts
It will first ask you to report the income for the dividends and interest. In this case, you just need to check a box next to the dividends and interest to record the income.
After this is done. There should be two country summary screens.
When you get to country summary screen, select edit next to the country XX that reported the interest.
Here it will ask you to report other Gross income XXX. You will report the Gross proceeds from the sale.
Don't enter anything for expenses.
Continue through the screen until it asks you to enter foreign taxes. Here you will enter foreign taxes on other income.
Finish out the interview screen until you are done.

Re: Taxes Withheld and Sales Expenses for Inherited House in Foreign Country

JackSpaniel — Thu, 12 Feb 2026 15:27:13 GMT

I am not yet sure whether the above approach makes 8949 and 1116 consistent. Let's work with specific numbers:

Sale Price was $50K

Taxes Withheld on Sale $15K

FMV on Deceased Death $150K

Expenses Definitely Related to Sale $50 (appraisal to establish FMV)

In this email, I first want to make sure 8949 is correct, then depending on the response, I will get to 1116 in the following email.

Proceeds: Should this be $50K or $35K? In my bank, $35K was deposited but deed says sale price was $50K

Cost Basis: This is easy, $150K

Adjustment to Gain or Loss, $50

Thanks.

@DaveF1006

Re: Taxes Withheld and Sales Expenses for Inherited House in Foreign Country

DaveF1006 — Thu, 12 Feb 2026 16:16:47 GMT

You will enter $50,000 as the amount of Gross proceeds. Taxes are reported separately on Form 1116 so that you can receive the foreign tax credit.

For your Form 8949 and Form 1116 (Foreign Tax Credit) to line up, be sure to report the “Gross” amount on Form 8949. If you enter the “Net” amount (what you received in your bank account), you’ll end up counting the tax twice—as both a reduction in income and a credit—which isn’t allowed by the IRS.

Re: Taxes Withheld and Sales Expenses for Inherited House in Foreign Country

JackSpaniel — Thu, 12 Feb 2026 22:34:07 GMT

@DaveF1006

Thanks for clarifying how to fill out 8949 correctly. I am taking itemized deductions as opposed to standard.

If I take all of the foreign taxes as a deduction as opposed to a credit, they go on Line 6 of Schedule A.

Is it possible to take foreign tax credit on 1116 for the 1099-DIV and 1099-INT and take foreign tax deduction on Line 6 of Schedule A for the $15K held at source for the house sale?

I have read 1116 instructions and Pub 514 and normally you take either a deduction or a credit for all foreign taxes for that year. However, exceptions apply where you can mix and match in situations where part of the foreign taxes are disallowed as a credit due to certain reasons, in which case you can take those taxes as a deduction. Clearly the $15K is on a long term loss ($50K sale proceeds - $150K basis). Publication 514 mentions one such reason (Covered Asset Acquisition) where the credit may be disallowed and then it can be taken as a deduction. It appears to me this applies to the inherited home sale because for US there is a stepped up cost basis while not so for the foreign country.

Please let me know if this will work. The problem is I cannot understand the referenced material: Section 901(m) and the referenced Treasury Decision. Filling out the Turbo Tax 1116 for the 1099-DIV and 1099-INT credit and Schedule A Worksheet for the $15K deduction are easy - I just need to confirm this is okay.

Re: Taxes Withheld and Sales Expenses for Inherited House in Foreign Country

DaveF1006 — Thu, 12 Feb 2026 23:52:24 GMT

Yes, it is possible to mix and match your foreign taxes. IRS Publication 514 says you must choose to take a credit or a deduction for all foreign taxes you pay in a year. However, you can mix them if specific taxes aren't eligible for the credit. You cannot take a credit and a deduction for the same tax.

Since you have the TurboTax software, go to your forms mode and select Schedule A. Go to line 6 and enter "Foreign Income Taxes on income not creditable due to U.S. loss." and then the amount. This will now become an itemized deduction."

The basis for this is found under "Exceptions for foreign taxes not allowed as a credit." It identifies Section 901(m) as the legal anchor for your situation. The text specifically states:"You paid or accrued taxes on income or gain in connection with a covered asset acquisition. Covered asset acquisitions include certain acquisitions that result in a stepped-up basis for U.S. tax purposes"

For the IRS, a "Covered Asset Acquisition" (CAA) is a technical term for a transaction where the U.S. and a foreign country disagree on the value (basis) of an asset.

The Basis Step-Up: When you inherited the home, the U.S. gave you a "stepped-up basis" to its Fair Market Value ($150,000) under Section 1014.
The Foreign Disparity: The foreign country likely ignored this death-time reset and calculated your tax based on a much lower "carryover basis" (what your father originally paid).
The "Disqualified" Portion: Section 901(m) says that because the foreign country is taxing "income" that the U.S. doesn't even recognize (the difference between your $50k sale and the $150k basis), that portion of the tax is disallowed as a credit.

The Resulting Deduction: Because the tax is "not allowed as a credit" under this specific rule, Pub 514 grants you the exception to deduct it on Schedule A, even if you are taking the credit for other things, like your dividends.

Re: Taxes Withheld and Sales Expenses for Inherited House in Foreign Country

JackSpaniel — Fri, 13 Feb 2026 12:55:38 GMT

@DaveF1006

Thank you!

1099-DIV is RIC income for 1114.

1099-INT is Country X income for 1114.

Inherited House Sale was in Country X too.

Two questions:

1. In Turbotax, what should go on the "Description of Property" - 8949 Part II Line 1 (a) . Should I put "Foreign Income Taxes on income not creditable due to U.S. loss" for Schedule A Line 6 or more country specific language?

2. Do you have a link for an easily readable version of Section 901(m)?

Country X withheld income taxes as a flat % of the inherited property sales price without any regard to cost basis (original or stepped up). That's the rule there.

Re: Taxes Withheld and Sales Expenses for Inherited House in Foreign Country

JackSpaniel — Sun, 15 Feb 2026 14:07:43 GMT

@DaveF1006

Thank you!

Couple more questions on this, with the following background:

1099-DIV income is from RIC for form 1114
1099-INT income is from Country X for 1114
Inherited House Sale (at a significant loss for US purposes) was in Country X too.

In Turbotax, what should go on the "Description of Property" - 8949 Part II Line 1 (a) ?
In Turbotax for Schedule A Line 6, should I put what you suggested earlier: "Foreign Income Taxes on income not creditable due to U.S. loss" or more country X specific language given that both the 1099-INT and inherited house sale were in the same country?

You are correct, country X withheld income taxes as a flat % of the inherited property sales price without ANY regard to cost basis (original or stepped up). That's the rule there.

Thanks!

Re: Taxes Withheld and Sales Expenses for Inherited House in Foreign Country

DaveF1006 — Tue, 17 Feb 2026 15:08:05 GMT

After researching this more in depth, the tax that was charged on the basis of the house was an inheritance tax and not a foreign income tax based on the sale. If this was the case, you cannot claim a foreign tax credit or deduction for inheritance tax.

The key caveat here is that the Foreign country did not tax on INCOME but on INHERITANCE. If they would have taxed on income, they would have taxed on the proceeds and not the basis.

My apologies for the advice I gave you earlier.

[ Edited 02/17/2026 I 7;00am PST]

Re: Taxes Withheld and Sales Expenses for Inherited House in Foreign Country

JackSpaniel — Tue, 17 Feb 2026 21:47:48 GMT

@DaveF1006

NO! The foreign country charged INCOME TAX ($15K) on the gross proceeds of the sale amount ($50K). Their was no inheritance tax or cost basis involved. They charge a % of the sale amount as income tax. Everything we discussed was correct.

I have carefully reviewed our Q&A in this thread and realized I did not explore the option of taking the house sale foreign tax as a credit per your instructions from above in a previous reply (reproduced below in italicized font):

"As you navigate through the foreign tax credit section, your dividend and interest information is already reported. You need to report the sale of the house and report the gross amount of the proceeds..

Go to Deductions & Credits
Estimates and Other Taxes Paid > Foreign Tax Credit.
Follow the prompts
It will first ask you to report the income for the dividends and interest. In this case, you just need to check a box next to the dividends and interest to record the income.
After this is done. There should be two country summary screens.
When you get to country summary screen, select edit next to the country XX that reported the interest.
Here it will ask you to report other Gross income XXX. You will report the Gross proceeds from the sale.
Don't enter anything for expenses.
Continue through the screen until it asks you to enter foreign taxes. Here you will enter foreign taxes on other income.
Finish out the interview screen until you are done."

It turns out if I report the gross proceeds from the sale of the inherited house per these instructions, I can take ALL of the foreign taxes paid, including ones reported on 1099-INT and 1099-DIV, as credit and in that case do not need to itemize the house sale foreign taxes as a deduction. This would result in the most favorable tax outcome, as you can well imagine.

If I do what you suggest above, in Turbotax interview for France's Passive Income piece of 1116, I input:

Then I don't enter anything for expenses or losses as you suggested:

The first part of resulting 1116 looks like the following. The $600 in France's 1099-INT income and $500 itemized deductions are US personal property taxes.

and

Then I enter income taxes withheld on the house sale as you had indicated earlier:

This results in FULL credit of foreign taxes, where the house sale proceeds are treated as ORDINARY INCOME (not long term or qualified gains), 100% consistent with the treatment by France.

The MISTAKE I was making is that I was entering $100,000 of ordinary losses on this income (and $50 ordinary expenses, although that is less important) to be consistent with the US TREATMENT of this sale per 8949. If I do so, then the following is what I see. First picture shows the $50 expense for appraisal per 8949 and the second picture shows the $100,000 loss per 8949 ($50K sale price - $150K basis).

This results in modifications to the 1116 shown above. Note the changes on Lines 2 and 5.

This results in complete inability to take ANY foreign tax credit and all of it is carried forward which I will never be able to utilize.

SO the key difference between the two approaches is whether I treat the foreign proceeds from the sale of the inherited house as ordinary income, consistent with your instructions and 100% consistent with the foreign country's treatment of those proceeds, or do I treat the foreign proceeds from the sale of the inherited house as a short term capital loss (there is no provision in 1116 for a long term capital loss) along with expenses?

This question is key and your help will once again be much appreciated! I've taken a whole day to draft this reply, your careful review will be very valuable, please DM me or post a reply here if any more clarifications are needed.

Re: Taxes Withheld and Sales Expenses for Inherited House in Foreign Country

JackSpaniel — Tue, 17 Feb 2026 21:50:46 GMT

@DaveF1006 And as a reminder, for the sale of the foreign inherited house:

sale proceeds = $50K

income taxes withheld at source = $15K

appraisal = $50

(US stepped up cost basis = $150K but the foreign country did not care about ANY cost basis).

Re: Taxes Withheld and Sales Expenses for Inherited House in Foreign Country

DaveF1006 — Tue, 17 Feb 2026 23:26:58 GMT

Treat this as a long-term capital loss. If the house remained unoccupied 1 1/2 years after your parents death, this would be a long-term capital loss if you are the beneficiary of the inheritance. All inherited property sales, whether they are foreign or domestic, are considered long-term in terms of capital gains or losses under IRC 1223(9).

This is a good thing, especially if you have future investment income that this loss can be applied to. For example, if your long-term capital loss is $15,000 but no investment income this year, you can only claim $3000 for this year and carry over the remaining $12,000. But if you have capital gains this year from other investments, more of that capital loss can be applied.

Since it is a carryover, you can apply the carryover amount to offset future capital gains. In this instance, you may not be able to claim future foreign tax credit carryovers, but you can certainly claim carryover capital losses.

Since you said that the tax was based on the money, not the money, this would be a tax that can be deducteed or credited. As I said before, you can't mix up foreign income credits or deductions. But if you paid $15,000 tax on income that the U.S. doesn't recognize because of the basis step-up (the FMV at death), you may be able to argue that it's a 901(m) tax and reported on Schedule A as I suggested earlier.

@JackSpaniel

Re: Taxes Withheld and Sales Expenses for Inherited House in Foreign Country

JackSpaniel — Wed, 18 Feb 2026 15:51:37 GMT

@DaveF1006

Hi there,

Thanks for your latest reply! I'm afraid though you missed the entire point of my latest question.

I am well aware of the capital loss carry forward benefits. I am well aware of that an inherited house is a long term asset. I am also now aware of 901(m), thanks to you. My question had nothing to do with these.

In my last post, ignoring all the previous questions (starting from clean slate!), I am only asking if I can claim foreign income tax credit for the foreign income taxes paid on the sale of the inherited house in the foreign country. In a previous reply, you had indicated the way to do this will be the following:

Go to Deductions & Credits
Estimates and Other Taxes Paid > Foreign Tax Credit.
Follow the prompts
It will first ask you to report the income for the dividends and interest. In this case, you just need to check a box next to the dividends and interest to record the income.
After this is done. There should be two country summary screens.
When you get to country summary screen, select edit next to the country XX that reported the interest.
Here it will ask you to report other Gross income XXX. You will report the Gross proceeds from the sale.
Don't enter anything for expenses.
Continue through the screen until it asks you to enter foreign taxes. Here you will enter foreign taxes on other income.
Finish out the interview screen until you are done."

I am only double checking if this is correct. For some reason, I had in my mind to add expenses of $50 and losses of $100K in the interview screens after step 7 above, which clearly you state is unnecessary.

I know you must be very busy answering questions with your expert knowledge so it's easy to lose track! Please read this message and the last post carefully when you get a chance, as I think you are very close to resolving my question!

I really do thank you once again!

Please let me know if you have any questions about my question.

Re: Taxes Withheld and Sales Expenses for Inherited House in Foreign Country

DaveF1006 — Thu, 19 Feb 2026 12:39:55 GMT

When you are filling out the Foreign Tax Credit section (Form 1116), you are trying to tell the IRS how much "Foreign Source Taxable Income" you have so they can calculate the limit on your credit.

For a capital asset like a house, your "expenses" (selling costs, commissions) are already factored into the cost basis when you reported the sale in the Investment section (Form 8949). If you entered them again in the Foreign Tax Credit section, you would be "double-deducting" them.

Losses: On Form 1116, "Gross Income" specifically means your gains before losses. The IRS instructions for Form 1116, Line 1a, state that you should enter your "total capital and ordinary gains (before subtracting any losses)." The software handles the "netting" of your losses in a separate part of the calculation to ensure you don't get a credit for tax paid on income that was wiped out by a loss.

By reporting the Gross Proceeds and skipping the expenses/losses in the Foreign Tax Credit interview, you are following the proper flow to ensure the software matches the IRS's "Gross Income" definition for Form 1116.

To summarize, you already reported the "Cost Basis" (the value when you inherited it) and the "Selling Expenses" in the Investments/Capital Gains section. The software uses those numbers to calculate your actual taxable gain or loss for the year. You don't report them again to determine the Foreign Tax Credit because you would be "double-dipping" by using the same dollar of expense or loss to get two different tax benefits.

Re: Taxes Withheld and Sales Expenses for Inherited House in Foreign Country

JackSpaniel — Thu, 19 Feb 2026 15:18:37 GMT

@DaveF1006

Double dipping? Actually, the effect on foreign tax credit of declaring the foreign house sale as a loss on 1116 is the exact opposite! If I declare $100K loss (as opposed to a $50K gain) for the house sale on 1116, it wipes out not only the $15K foreign income tax but also the 1099-INT and 1099-DIV foreign taxes withheld, with a net credit of 0!

I am not saying I want to report the foreign house sale as a loss on 1116. I think you are saying to go ahead and report it as a $50K income on 1116. 1116 does not carry over ANY information from 8949 (proceeds, expenses, or basis, profit, or loss). In fact reporting just the $50K proceeds as income and $15K taxes paid and skipping the expenses and loss on 1116 results in me being able to take ALL of the foreign taxes paid as credit. No carry forward, no need to claim the $15K as a deduction on Schedule A under 901(m).

I just wanted to be double sure this is correct. Particularly since doing so results in the foreign house sale being reported as $50K ordinary income on 1116 (which is how the foreign country treated it), whereas foreign house sale being reported as a long term $100K capital loss ($50K - $150K) on 8949.

This confusion in my mind is triggered by 1116 instructions which state "If you have foreign source qualified dividends or foreign source capital gains (including any foreign source capital gain distributions) or losses, you may be required to make certain adjustments to those amounts before taking them into account on line 1a (gross income) or line 5 (losses)." But I think you are saying the foreign house sale, for purposes of 1116, is ordinary income (as treated by the foreign country) so the above does not apply.

Again, in light of the above, please let me know if I can go ahead and report the foreign house sale as a $50K income, $15K foreign taxes paid on 1116 and skip the expense and loss lines. Thanks again.

Re: Taxes Withheld and Sales Expenses for Inherited House in Foreign Country

DaveF1006 — Thu, 19 Feb 2026 17:48:31 GMT

Yes. Reporting the $50K proceeds is the best way to go. The instructions you quoted about "adjustments to line 1a" are the key. Because the U.S. taxes capital gains at lower rates ($0\%$, $15\%$, or $20\%$) than ordinary income, the IRS requires you to shrink your foreign capital gains before putting them on Form 1116.

However, when you have a Capital Loss on the U.S. side (Form 8949) but paid Foreign Income Tax on the same transaction, you are in a "mismatch" zone. The foreign country saw a profit; the U.S. sees a loss. By entering the Gross Proceeds ($50k) on Line 1a of Form 1116 and skipping the basis/loss:

You aren't lying to the IRS: You are accurately reporting that you had $50,000 in foreign "Gross Income" (which is exactly what Line 1a asks for).
Form 1116 is a "limitation" form. Its only job is to see if you have enough foreign income to justify the credit. Since you paid tax on that $50,000 abroad, that $50,000 is the "income" that justifies the credit.
By not entering the $100k loss here, you prevent the form from showing a "Negative Foreign Income," which would incorrectly kill the credits for your 1099-INT and 1099-DIV as well. This is not in your best interest.

What is important here is how the IRS sees this.

The IRS sees your $100k loss on Schedule D / Form 8949. This reduces your overall U.S. tax bill.
The Credit is justified: The IRS sees you paid $15k in foreign tax. By showing $50k of foreign income on Form 1116, you are providing the "justification" for the credit.
Consistency: As long as the total foreign tax you claim matches your receipts, and the total capital loss matches your basis calculations, the IRS will accept your return. If they question it, you have your proof.

[ Edited 02/19/2026 I 9:48am PST]