foreign tax credit

[Bink33gas]

This is Bink33gas.  I have premier turbo tax .  I would like an explanation form a professional.

[pk]

@Bink33gas  what is your  question about foreign tax credit ?  What category of foreign income that was taxed  and  by which country?  Is your tax home in USA? Are you a citizen/Resident ( GreenCard)/Resident for tax purposes ?.

Generally the foreign tax credit is used to reduce the effects of the  double taxation by both USA and the foreign Taxing authority on the same income.  This is because USA taxes its citizens/Resident/Residents for tax purposes  on worldwide income  while most countries  tax on the basis of residency / territory.  US recognizes the  full taxes paid to a foreign taxing authority on the income ( doubly taxed) , but the allowable credit per year is based on a ratio of the US person's foreign incomes to US sourced income.   The  foreign tax credit that is disallowed for the  year , can be carried backwards  or carried forward for 10 years.  Or  one can  use the foreign taxes paid as a deduction , if one itemizes ( but SALT limits may reduce the efficacy of this ).  Also tax credits  from income of different  categories of income can only be used to reduce taxes for identical categories.

If you are talking about  foreign tax credit  for  dividends etc and under a limit ( $300 for single filer, $600 for  joint filer ) then  the  whole amount is available as a credit without using the form 1666 and  its ratiometric limitation.

Please answer  my questions and perhaps I can help you more on the subject.  I am a retired  tax professional ( not associated with TurboTax )

[LeonardS]

"To choose the foreign tax credit, you generally must complete Form 1116 (PDF) and attach it to your Form 1040, Form 1040-SR or Form 1040-NR. You must choose either the foreign tax credit or itemized deduction for all foreign taxes paid or accrued during the year." Ref: IRS Topic No. 856.  TurboTax supports Form 1116.  To report your foreign tax paid follow these steps

• With TurboTax open enter Foreign Tax paid in the search box
• Select Jump to foreign tax paid in the results window
• Follow the prompts to enter your foreign tax paid information.

This IRS publication Topic No. 856 Foreign Tax Credit has information you may find useful.

[Global20]

Do you know where in Turbotax to enter tax that was paid in a foreign country for the tax  credit?

I am married filing jointly. Both of us are US citizen, tax home is the US. My wife worked in France and her income there was $34000 and she paid $1200 in taxes. Because she has 6 weeks vacation that she spent in the US she is not eligible for foreign income exclusion, so I would like to get the tax credit. However in TurboTax I found no place where I can enter how much did she pay in taxes to get the credit. Please advise.

[pk]

@Global20   while in TurboTax, use the search box -- enter  "foreign tax .." then from the drop down box   jump to "foreign tax credit".  This will then open up dialogue/questions for form 1116  regarding foreign tax credit.

Also , you may want to try  doing your return both as Married Filing Sep ( for each of you ) and as Married Filing Joint --- this is because  foreign tax credit allowable  is based on a ratio of foreign income to  world income -- thus if you yourself have a large US income then the  foreign tax credit may be quite limited ( and not the $1200  that your wife paid ).

let me know if I can do more

[jwbrit]

I'm resident in the UK and I sold an inherited non primary home in the UK and paid UK capital gains taxes. In reporting the capital gains on my US return I can't see where I can get a credit or deduction of those CAPITAL GAINS foreign taxes. While it looks possible for earned income, it doesn't for Capital gains. Is it?

I'd appreciate any input from the community experts. Thank you. 

[Mike9241]

this can be complicated since the gain for the US FTC may have to be reduced depending on what US Federal income taxes you pay on the gain. It is possible you will owe $0 US taxes before the FTC (the capital gain falls into the 0% US tax bracket) then you get $0 FTC only a carryforward. the type is passive and you must complete 

the 1116 carefully.

see this link where I give step by step instructions

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/re-how-to-treat-long-term-capita...