Form 1116 as Expat with only USA income

[jimgutman]

I am an expat living in Spain.  I do not work or have any Spain related income.  All my income is from the US and is  interest, dividends, pension, and social security.   I have to pay income tax to Spain for all of this US income.  When I complete form 1116 to claim the Foreign Tax Credit on my US taxes, the form asks me to show my SPAIN income.  (I don't have any Spain income).   Do I show my US income (interest, dividends, retirement, social security, etc) that I reported to Spain and was thus taxed by Spain?  In other words, since I don't have any Spain related income, what do I show as the "Spain Income" on the from 1116?

TIA

[pk]

@jimgutman ,   Generally, when the income is US sourced  and is taxed by both your country of residence and US ( country of  citizenship or PR ), you need to  use   "resourced by treaty"  on form 1116 and enter the amount of such income being taxed by both jurisdictions.  So select that category on form 1116, enter the total US income and that should work .

Is there more I can do for you ?

[jimgutman]

@pk Thanks for your response. As a clarification, not all my US income is taxable in Spain. So are you saying I only report on Form 1116 that portion of my US income that is taxable in Spain?

thanks again. 

[pk]

@jimgutman , sorry for the delay in responding. Hoping my answer would still be useful to you.

Yes -- you  need to resource only those items of income that are being taxed by both jurisdictions.   Hope this makes sense -- yes ?

pk

[friscoKM]

Hello @pk ,

I am in a similar situation.  I only have USA-sourced income, but I am taxed on a portion of it in Portugal.

I know I need to fill out Form 1116 and classify the portion of the US-sourced income taxed in Portugal as income "resourced by treaty".  I just don't know how to do this in TurboTax (Online).

When asked via the TurboTax interview questions whether I have foreign-sourced income, I say no.  But when I try to fill out the interview questions for the Foreign Tax Credit (FTC), it says I have no foreign-sourced income and won't let me proceed.  How do I let TurboTax know I have "income resourced by treaty" so Form 1116 will be filled out appropriately?

Any help you can give?  All of the TurboTax help articles just tell me to fill out my foreign-sourced income, which doesn't help in my situation.

[pk]

@friscoKM , while I am not familiar with the screens and abilities of the on-line version,  and based  on the Tax treaty ( & technical explanation thereof ), -->

"Paragraph l(b) provides that social security payments and other
public pensions paid to a resident of a Contracting State or a
citizen of the United States by the other Contracting state may
be taxed in that other state. This rule includes railroad
retirement benefits provided for in the Railroad Retirement Act
of 1974. Social security payments may be taxable in both
Contracting States, with the State of the recipient's residence
allowing relief from double taxation under the provisions of
Article 25 (Relief from Double Taxation) for any taxes imposed by
the contracting state in which such payments arise."

the only way to do this would be ---- (a) tell TubroTax that you do have foreign taxes paid ; want to take credit -- this would result in a form 1116 opening; then for category choose  " in come resourced by treaty "; for treaty article choose 25  -- "Social Security  double Taxation" as  article reasoning; enter the foreign income  equal to Social Security amount taxed in Portugal' enter the foreign tax as the  amount paid in Portugal.

That should work -- I can  confirm  this on the desktop version  but do not have access to the on-line version.

If you still have issues , please will you let me know and I will ask help from "champs/ experts" familiar with the on-line version to chip in.

Is there more I can do for you ?

pk

[friscoKM]

---

(a) tell TubroTax that you do have foreign taxes paid

---

How do I do this step?  When I am asked to enter any foreign-sourced income, I say I don't have any (since it is US sourced).  So it never asks how much in foreign tax I paid.

If I say I do indeed have foreign sourced income - do I put in 1 cent?  And then when that triggers Form 1116, edit that directly?

Or if I repeat all my US income and enter it as foreign income, won't that cause TurboTax to think I have double my income (half US based, half foreign)?

Sorry if I am missing something obvious.  Just unclear how to trigger tax form 1116 to show up.

[pk]

@friscoKM ,

(1) say your Social Security for the year 2023 was  US$25657  ( before deduction for  Medicare B -- which you probably do not contribute to anyways )      And Portugal recognizes this whole amount as your  Foreign source income and taxes  you  $2500 equivalent in Euros

(2) You tell TurboTax   you have Social Security income of US$25657 and US taxes  18000 of it.

(3)  Under  Credits and Deductions you tell TurboTax you have Foreign income of  18000   because that is portion of Social Security being taxed by both countries.  On form 1116 you also use the  category  of "Resourced  by Treaty  as mentioned in my earlier response.   And the amount of Tax paid to Foreign Taxing  authority is   ( 18000/ 25657) X 2500 -- allocating the taxes paid to  Portugal based  on the amount that is being taxed by both countries.    This  purist view is my position.

(4)  Amounts entered as foreign income on form 1116 will not go back to  form 1040 and increase your  AGI.   However,  you should confirm this   by using forms mode .

(5)  Please enter the resourced income ONLY on form 1116 as foreign income and only for this category, else it may end up adding to your AGI

Does this help