I am paying taxes to Brazil on US-based passive income (pension, interest, dividends). Can I use the Foreign Tax Credit when filing my US taxes?

[tagteam]

@pk

[rsudol]

I followed your link and found 675 pages of answers.  Is one of them to my question?  thanks

[tagteam]

No, and it's not a link; it's a page to a knowledgeable Champ here on the board. Hopefully, @pk will answer soon.

[pk · Accepted solution]

@rsudol , assuming that you are a US person (citizen/ GreenCard ) and having a tax home in Brazil. incomes that are taxed by both US and Brazil  come under the "double taxes " amelioration  as follows :

(a)  for passive income  taxes  up to  USA$300 per filer  ( thus  US$600 for a joint filer  ) can be availed  of  ( as safe harbor ) without having to file a form 1116 -- just tell TurboTax  ( under Deductions and Credits tab ) that you have foreign taxes to recognize.

(b) if the amount of foreign taxes paid  is greater than the safe harbor amount above, then one can either  use  it as a deduction under  State & Local Taxes   ( SALT )  on schedule-A  but  herein SALT limitation applies 

(c) Or one can  use form 1116  to claim foreign tax credit ( under Passive  income )  but here while the full amount is recognized , the amount allowed  for the tax year  depends on a ratio  of Foreign income to World income.  The unallowed amount is carried  back for a year or forward till extinguished.

I hope I have answered your query  ( even though in a roundabout way .  Is there more I can do for you ?

pk

[rsudol]

Hi there - and thanks for this information.  Just so I'm clear:

A) the amounts in question will be significantly larger than $300 (I am a US citizen and a single filer), so I guess a form 1116 will be in my future.

b) My US taxes are based on my residence in Washington State - so there would be no SALT for me!

c)  Assuming that this will be my situation, I'm not clear on the impact of "world income" vs "foreign income".  I have been retired all of 2022, and my income has been interest, dividends (on my Roth IRA, Traditional IRA, brokerage and bank account) and my pension from a US-based company.  While I do have holdings in a "Brazil ETF" which has positions in Brazilian companies (EWZ - MSCI Brazil ETF), I have no idea if this would be treated as foreign holdings or US holdings.  Can you explain (or point me in the direction of more information) about the impact?  For example, I think that for 2022 I will have approximately $68k in pension, about $10k in taxable distribution/interest (brokerage/bank accounts only) and a $20k withdrawal from my Traditional IRA (total "income" of $98k).  I expect that I will need to be paying Brazilian taxes of about $10k.  How would the limits you mention apply?

Thanks in advance!!

Richard

[pk]

@rsudol , while go back an refresh my memory on  US-Brazil tax  treaty , can you please tell me the following:

Dates in 2022  that you were in Brazil and under what visa ?

When did you establish your WA residency ?

Are you trying to file US return  for the tax year 2022  or 2023 ?

How about Brazil  ?

Please these will help me understand the situation a bit better so I can provide a more focused answer .  If the details get to the point of no interest for general board members you can always PM me  ( just no Personally Identifiable Info , please ).

pk