Foreign tax credit for rental income in Canada

[howard-jung]

Hi,

I have W2 income in the US and rental income in Canada.

I am a Canadian citizen, but am considered a resident alien in the US for tax purposes.

I've been declaring all of my income to the IRS and to the CRA (the Canadian version of the IRS). 

I've paid taxes to the US. I've also paid taxes to the CRA, the  difference between what I paid the IRS and what would have been owed to the CRA (because  of their generally higher tax rates).  For example, if I owed the IRS $1000, and the CRA $1200, then I would pay the IRS $1000 and the CRA $200 (after all currency conversions).

Can I claim the $200 as a foreign tax credit on Form 1116 for  past years?  If so how would I do that in TurboTax?

Can I claim the $200 as a foreign tax credit on Form 1116 for the current year?  (I would have to figure out how much tax would be on the rental income in Canada as well)

If anyone could answer these questions, or provide some guidancde, that would be greatly appreciated!

[ThomasM125 · Accepted solution]

You can claim a credit for income taxes paid to Canada to the extent you paid US taxes on the same income. So in essence, you need to calculate what your US tax was on your Canadian income and if it was as much as $200, then you will get a credit for that amount. Any unallowed credit can be carried over to future years.

In TurboTax, you need to navigate to the Foreign Taxes section, which you will find in the Deductions and Credits area, and then under Estimates and Other Taxes Paid.  You will see an option to enter your foreign income that was entered on your US tax return and the foreign taxes paid on it. Form 1116 will be generated and will be used to determine your foreign tax credit. 

You can amend returns going back three years from the due date of the return to re-coop tax credits that you overlooked. You will see an option to prepare an amended return on your home page under Your tax returns and documents once you log into your online TurboTax program. Choose the year you want to amend and follow the instructions under Amend(change) return.

[Woody16]

I have almost exactly the same situation on the Canadian Rental income. 

Can you please explain a bit more your answers? Thanks!

1) Can I take your answer "So in essence, you need to calculate what your US tax was on your Canadian income and if it was as much as $200" as "So in essence, you need to calculate what the difference was between your US tax and your Canadian income and if it was as much as $200"?

2) "Any unallowed credit can be carried over to future years."  -- Unallowed credit means the credit it too big (above the limit) for this year, hence can be allowed for next years?

[DaveF1006]

No. You won't calculate the credit yourself.  The TurboTax program is equipped to do that for you. Don't attempt these calculations on your own. 

Any credit that is disallowed this year will be carried over the next ten years if unused during this time period.

@Woody16