topic Re: Avoid Form 1116 for less than 10% limited partners in Deductions & credits

Avoid Form 1116 for less than 10% limited partners

ilenearg — Wed, 11 Feb 2026 10:22:16 GMT

Trying to get a Foreign Tax Credit in connection with two K-1/K-3s. I'm a limited partner with less than 10% interest (actually, less than 1% interest) in each business entity. Filing as married/joint. Total Foreign Taxes paid is barely over the $600 threshold for automatically avoiding Form 1116 (total is $654 [$589 on one K-3 (Australia), $65 on the other (UK)].

If I let TurboTax prep the 1116, and include the $589 and $65, I get $17 as a Foreign Tax Credit. If I leave off the $65 from the UK K-3, and only report the General Category Income listed on the UK K-3, TurboTax does NOT prepare Form 1116, and I get $589 as a Foreign Tax Credit.

SO... here's the question ... do I HAVE to claim the $65 Foreign Tax Credit on the UK K-3, or is it legit to just leave it off? OR, since I'm less than 10% interest, must I report ALL of the income (the passive column c income as well as the general column b income) as passive, and, if I do the latter (all passive), will it still required the form 1116?

OR.... if I let TurboTax do its thing, and only get the $17 Credit, will it know to carry forward the remaining $637 each year up to 10 years until it falls under $600 and can ALL be claimed? Not sure why it won't still give the $600 Foreign Tax Credit and just carry forward the $54 excess - unless there is a way to force that.

HOPE I'M NOT BEING TOO CONFUSING!

Re: Avoid Form 1116 for less than 10% limited partners

pk — Wed, 07 Aug 2024 18:23:22 GMT

@ilenearg , no you are not confusing -- what I understand from your post:

(a)t you have Foreign source incomes and foreign taxes paid for the year 2023.

(b) these are passive in nature

(d) the income sources are from UK and Australia, both have Tax treaty with the US and have "double taxation clause" --- I am familiar with the US-UK tax treaty but have to look up that with Australia

(d) because the total foreign taxes paid amount is slightly above the safe harbor limit and using a form 1116 will indeed result in a lesser Foreign Tax Credit, there is now a question as to path forward.

The general requirement and assuming that you & your spouse ( MFJ filing ) are US persons ( citizen/ GreenCard ), is that you must recognize all income no matter the source and country i.e. world income. IRFS gets copies of all information returns ( 1065, K-1 and K-3 etc. ) . Thus IRS knows and looks for all incomes for federal tax purposes.

However, there is no requirement for the tax payer to recognize each all taxes paid to a foreign taxing authority ( either as a deduction or credit against US taxes ). You get to choose what is most advantageous to your situation.

Long story short, you do not have to recognize all the taxes paid. You are quite within the tax laws to recognize a total of up to US$600 from the two constituent K-1/K3s of US$589 and US$65. My suggestion would be recognize only one for US$589 and ignore the US$65 -- I say this because this way you are within the perjury jurat ( the recognition of only part of the US$65 -- while legal, may -- still requires one to replace the US$65 to a different number and claim to be true ).

That is my view.

Is there more I can do for you ?

Re: Avoid Form 1116 for less than 10% limited partners

ilenearg — Sat, 10 Aug 2024 15:39:49 GMT

Makes sense to me. I chatted with a TurboTax person and he felt that I'd have to report it, but maybe he misunderstood your suggestion of reporting everything on the form, but not claiming the $65. I'm not quite sure how to key that into TurboTax. Can't try right now as I'm recuperating from hip surgery and can't go up to work on my computer! What WAS suggested is, sonce I have less than a 10% interest on the LP, to put everything in as Passove and don't breakout the general from passive. Does that makes sense? As I recall, when I entered in for before and broke it into that column a and column c for line 16, it gave me an error and said to report as separate K-1/k-3. If I do as separate, what do I enter in for the second one? Would I put in the percentages and the other info from the left half of the K-1, or leave all but the entity and entity number blank except for the K-3, column b info?