topic Foreign tax credit vs deduction - I paid income tax in Canada for my vacation property and now I am not sure if "Taking a credit" is better vs "Itemized Deduction"? in Deductions & credits

Foreign tax credit vs deduction - I paid income tax in Canada for my vacation property and now I am not sure if "Taking a credit" is better vs "Itemized Deduction"?

junedans — Sat, 01 Jun 2019 14:03:06 GMT

After you have finished entering everything else in your...

KittyM — Sat, 01 Jun 2019 14:03:09 GMT

After you have finished entering everything else in your return, try both options and see which gives you the best result.

Generally - but not always - taking the credit yields the best result.

1. When I select "Itemized Deduction" and enter the forei...

junedans — Sat, 01 Jun 2019 14:03:11 GMT

1. When I select "Itemized Deduction" and enter the foreign taxes paid, I see my 'Federal tax due' goes down. Then I checked Schedule A form and its shows the foreign taxes paid under 'Other taxes', on form 1040 line 48 is empty. And on the 'Deductions & Credits' summary I see the foreign taxes amount show under 'Other Deductible Expenses'.
Not sure if this is right?
2. When I select "Taking a Credit" and fill Form 1116 , my 'Federal tax due' does not change and instead I get 'Excess Foreign Tax Credit'. I checked 1040 line 48 and its 0, but Form 1116 has the taxes under 'Passive Income' (since its a rental property in Canada)

The fact that option1 brings down my 'federal tax due' tempts me to submit using that option but wherever I read they suggest to select "Taking a credit". Please help me understand whats better and right to do here.

Whichever option gives you the lower tax is the best opti...

KittyM — Sat, 01 Jun 2019 14:03:12 GMT

Whichever option gives you the lower tax is the best option, and there is no "right" or "wrong," since you have two choices. It sounds like Option 1 is calculating as expected and since you have passive income Option 2 is not favorable to you.

Thanks for replying TurboTaxKitty. I understand option1 i...

junedans — Sat, 01 Jun 2019 14:03:14 GMT

Thanks for replying TurboTaxKitty. I understand option1 is giving me lower tax now. Can you please explain little more on option2 and why its not better from theory point of view. Option 2 leads me to 'Excess foreign tax credit' which means it will carryover to 2018, I got little confused here and why its carrying forward my credit vs the option1. Just trying to understand this for future.

Thanks for replying TurboTaxKitty. I understand option1 i...

junedans — Sat, 01 Jun 2019 14:03:16 GMT

Thanks for replying TurboTaxKitty. I understand option1 i...

junedans — Sat, 01 Jun 2019 14:03:18 GMT