Foreign Tax Credit

[davidrift]

The USA taxes income based on citizenship rather than residence.  Starting in 2020, I have lived in New Zealand and am also subject to New Zealand income taxes from the USA derived interest and dividends income.   I have no income from NZ sources.  I paid taxes in June 2021 to NZ Inland Revenue for March 2020  to March 2021 and seek to claim a Foreign Tax Credit when filing my USA 2021 returns.    My reading is it should be dollar for dollar; however, when entering the tax payment amount in 1116 Part 2, the credit claimed for taxes paid does flow thru as a deduction.   Turbotax support stated that credit would only offset taxes on foreign income, which does not feel right.  Any help would be great.  

[Mary67]

The treaty for avoiding double taxation between US and NZ (if there is any) should give you a solution for your issue. For some countries, the treaty allows the US sourced income to  be "re-sourced as a foreign income", and then the credit can be taken. 

[DaveF1006]

For further clarification, US NZ Tax Convention is a source of information that maybe helpful to you. Look in article 10 and and Article 11 as it explains the treatment of interest and dividends between the two countries.