I have W-2 (e.g. 100K), domestic capital gain (e.g. 50K), foreign capital loss (e.g. -70K), and the paid tax (e.g. 1K). Can I get the foreign tax credit?

[oys1382]

I have W-2 (e.g. 100K), domestic capital gain (e.g. 50K), foreign capital loss (e.g. -70K), and the paid foreign tax (e.g. 1K).

When I made input of them, I saw the foreign tax bracket being limited by the pro rata, foreign income divided by the worldwide income and multiplied by the US tax rate and ended up the foreign tax I paid isn't credited this year.

Is there any way to offset the tax owed in US by the foreign tax credit (1K) in this case?

Will the domestic capital gain (50K) increase the overall income and increase the tax owed in US? (total capital gain/loss is -20K anyway by 50K - 70K).

Thanks

[rogge1722]

Here is the procedure to obtain the foreign tax credit for foreign taxes paid on foreign capital gains/losses.

It is assumed that the reporting of all income including foreign capital gains/losses for U.S. tax purposes has been completed and the next step is to obtain foreign tax credit for foreign taxes paid using form 1116.

Some preliminary work has to be completed. Download the “2019 Instructions for Form 1116” and “Pub 514”.
Open the f1116 instructions and go to page 9. Under the heading “Adjustments to foreign capital gains and losses,” you will be using either worksheet A or B or the worksheet in Pub 514. The instructions will guide you to determine which worksheet to use. Whichever worksheet is used, after completion, you will have the amount to insert into f1116 line 1a if there is a gain or line 5 if there is a loss.

Next go to the foreign tax credit interview. Herein is a screen by screen presentation of a simplified scenario whereby the only income for foreign tax credit is the foreign capital gains.
1. Foreign Tax Credit
        Yes
2. Before We Begin
         Yes
3. Foreign Taxes
           Continue
4. Tell Us About Your Foreign Taxes
            Continue
5. Foreign Taxes
          Continue
6. Do You Want a Deduction or Credit?
          Credit
7. Reporting Foreign Taxes Paid
          Continue
8. No Other Income or Expenses
           No
9. Completing Forms 1116
            Continue
10. Foreign Tax Credit Worksheet
          Continue
11. Choose the Income Type
          Make the selection then Continue
12. Country Summary
        Add a country.
13. Country Name
          Select from the list
14. Other Gross Income-Country
          If there is a gain from the worksheet:
          In the description, enter “ Cap. Gains.”
           Enter the amount from the worksheet.
15. Definitely Related Expenses
          Enter any applicable amount.
16. Foreign Losses
           If you had a net foreign loss from the worksheet,
           enter it here.
17. Foreign Taxes Paid
           Enter the amount
18. Country Summary
           Done
19. Any Foreign Source Qualified Dividends or Long Term Capital Gains?
          Here, Long Term Cap. Gains refers only to capital gain distributions
          from a 1099-DIv.
Continue thru the remaining screens until finished.

[oys1382]

Thanks a lot. I read through IRS guide and tried to complete the worksheet A, as I have only passive/general income categories and the line 16 of Schedule D (form 1040) is a loss. 

I have following questions in the worksheet A with passive income 2K (category #1) and general income -72K (category #1) in line 1. The line 2 will then be -70K. And, I have -20K for line 3 (-20K = 50K - 70K). 

So, there is no US capital loss adjustment in 4. 

In this case, should I input both 2K and -72K in the f1116? or just include 2K on 1a of f1116? 

The worksheet actually said that I just need to take the positive amount on line 1 and include it on line 1a of f1116. (I don't even have to fill up 3 and 4.)

Additionally, reading through the instruction, I saw that the foreign loss (e.g. -70K) can offset the taxable US source income after recapturing the foreign loss accounts. (I also found this related article).

But, I am not sure if my case would fall into this case.

Can -70K (foreign loss) offset the US source income (e.g. 50K domestic capital gain)? 

Thanks

[rogge1722]

After reading the instructions for Line2, since that amount is negative, don't complete the rest of the worksheet. Thus lines 3 thru 8 remain vacant and you would insert the 2k amount in line 1 into line 1a of form 1116 using the passive category of income.  As I see it, there is nothing else to be done.