Appreciate any help on this as I can't find any previous notes on it:
- I have a foreign rental property, and I enter the foreign income generated from it into Form 1116. I enter the full Gross rental (let's say $10,000)
- At this screen it asks for "Definitely related expenses", which I assume means all of the mortgage expense etc. All of these expenses are recorded in Schedule E where they should be
- However, the checkbox at the bottom "Show me my deductions" states that I shouldn't record any numbers here, because I'm taking the standard deduction
My question is: should I zero these numbers out, or not? The screen shot below shows the screen, with the numbers zero'd out
Thanks in advance!
Yes, if you are not itemizing your deductions on Schedule A, you should zero out those deduction amounts.
From the F1116 instructions on p. 17 under "Lines 2 through 5-Deductions and Losses".
"If you don't itemize deductions, enter your standard deduction on line 3a, and don't enter on lines 2 through 5 any deductions that would have been reported on Schedule A (Form 1040). Don't include deductions and losses related to exempt or excluded income such as foreign earned income you have excluded on Form 2555 on lines 2 through 5."
No mention is made with regard to adjustments in Schedule E.
Thank you for this @rogge1722 . I read this as "If you're taking the standard deduction, don't enter any expenses that you would otherwise itemize on Schedule A". However, mortgage interest and depreciation on a foreign rental wouldn't be itemized on Schedule A, only on Schedule E. Does that mean that the "don't enter any expenses" part is not applicable in this case?
@DaveF1006 Thanks for replying. I'm taking a credit, i.e. I select the "taking a credit" when the initial options are to "take a deduction" or "take a credit"
Appreciate your views on what to do
Choosing between a foreign tax deduction and a credit depends on your specific financial situation. Here are some key points to consider:
Foreign Tax Credit: This is generally more beneficial because it directly reduces your U.S. tax liability on a dollar-for-dollar basis. It can also be carried forward or backward to other tax years if the credit exceeds your U.S. tax liability for the year.
Foreign Tax Deduction: This reduces your taxable income, which can be helpful if you don't owe much U.S. tax or if the foreign taxes paid are relatively small. However, you must itemize deductions to claim it