The IRS allows me to treat a foreign tax that I paid as either a Credit, or a Deduction. Taking the credit is clearly better from a federal tax perspective, but in doing this I lose the ability to have it recognized in my California Sate return because CA does not allow such credits. My question is: Can I enter the foreign item as an expense on my state return while keeping it as a credit on my federal return?
Example.
Sale of a Canadian rental property for $1.3M Canadian withholding tax approx. $300K.
Best case would be to have the federal tax as a credit and the state tax as a deduction.
If this is allowed, how can I modify my state return (in Turbotax) since it draws data from the federal data.
Thanks for any advice.
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To my knowledge, California does not allow a foreign tax credit or deduction. This is strictly a federal deduction or credit.
If I choose to enter the foreign tax as an expense on my federal form it automatically carries over to my California return as a "state and local" tax. Does this mean that TT is in error by allowing it?
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