Foreign Tax Credit and Double Taxation (US/Canada)

[maraivan]

Hello, I am a US resident with a Canadian property rental and I am struggling to understand how to properly do my US taxes to avoid double taxation. Here is what I am doing (using the TurboTax desktop app):

1. I fill out my taxes in the US, adding the Canadian rental income and expenses on Schedule A as I am supposed to. After income and expenses are entered in, it shows that I owe taxes on the gain in the US (I made a small profit on this rental of about $4,000, so now this is added to my US income). I am in a high tax bracket in the US so this $4,000 is being taxed to the max. 

2. I fill out Form 1116 for the foreign tax credit which helps a bit (by about $300).

What I am not understanding is that clearly this $300 is not enough to even things out and avoid double taxation. My income in the US where I work full time is much higher than my income in Canada from this rental. So when this rental income is added to my US income, I pay a significant % on it in taxes. The $300 foreign credit does not make up for that.

What am I missing here?

Thanks in advance.

[ParkNYC]

Maybe because your tax in Canada is much lower than in the US, so you'd have to pay the difference here. Also, for rental income you should use Schedule E. 

[AmyC]

@ParkNYC is correct on both counts. The rental does go on sch E. The credit allowed on the US return is the lower of Canada or US tax on the same income.