Another reason why your Foreign Tax Credit may be calculated as zero (Form 1116): Foreign Tax Carryover but no current year foreign income

[girigiri]

Dear Mr. pk:

Do I need to enter the capital gains (as usual per above screen shot sequence - similar to selling any US stock or bond with purchase price, selling price, net proceeds....etc., )  and then enter the taxes paid for that transaction per your instruction below?

(a) Under  Deductions and Credits tab, choose  " I will choose what I work ... ".

(b) From drop down  list of credits and deductions, near the end  you will Foreign Tax credit. 

(c) Click this  " Edit/ Visit ".   

(d) Then in the following screens  you will need to enter the details for form 1116 -- Foreign Source  Income ,  Source Country, amount paid etc. etc.   

Also, did you mean "Passive category" to include interest income, dividend income, bond proceeds, capital gains...etc.,

Regards,

Giri 

[pk]

@girigiri 

1.   May I suggest that you download and print a copy of the form 1116 from www.irs.gov -- search for   Form 1116.  I suggest this  because as you see  the screen questions from TurboTax, it will help recognizing what  it is trying to . 

2. Yes I meant that you  fill out the 1099 B information as per the screens you had shown earlier  i.e.  just as if you had sold  the asset in the USA.   Then later you have  to  go to the Deductions and Credit section to  fill out the form 1116 for  claiming Foreign Tax credit  --- the foreign gross income  may not flow directly to that form.

3.  Dividend, Interest, capital gain etc. are all passive income.

  For a definition  of what can be included  as passive income, please  page 6 of the instruction for form 1116 --------

2023 Instructions for Form 1116 (irs.gov)

Is there more I can do for you ?

Namaste ji

pk

[girigiri]

Namaste Dear Mr. Pk:

Due to other emergency issues, I had to stop working on the return and now I am continuing where I left off.  I will proceed per  your input and go from there.

• I noticed in the form 1116, in Part I, section 1(a) it asks to enter "Gross income". Does it mean, for example for a stock sale, do we need to enter

              (Total $ Proceeds from the sale - Total $ cost / purchase price of the equity - $ Brokerage commission)

               "or" do we need to enter (Total $ proceeds - Total  $ cost / purchase price of the equity) and enter the

              $ Brokerage commission in Section 2 "or" just Total $ proceeds from the sale.

               I looked in the instruction and it does not state anything.

Namaste,

Giri

[girigiri]

Namaste Pk:

I also forgot to ask you where one should enter Foreign Annuity Income in Turbo Tax?

Regards.

Giri

[pk]

Namaste ji.

Annuity distributions  ( like foreign  pensions ) are recognized using form 1099-R ( dummy ).  The taxation of annuity distributions  while generally same as for  domestic annuities, may be impacted by  treaty, by contribution sources etc.   Rather than provide you my own interpretation(s) , I would  like to refer you to the following  page from the IRS ,   :

The Taxation of Foreign Pension and Annuity Distributions | Internal Revenue Service (irs.gov)

If after reading through this , I can still help you, please feel welcome to add to this page or PM me and I will help to the extent  of my understanding of the law(s).

Regards  and of course Namaste / Namashkar

pk 

[girigiri]

Namaste pk:

Thank you. Per your input, I will review it. 

Also,  I noticed in the form 1116, in Part I, section 1(a) it asks to enter "Gross income".

Does it mean, for example for a stock sale, do we need to enter

              (Total $ Proceeds from the sale - Total $ cost / purchase price of the equity - $ Brokerage commission)

               "or" 

              do we need to enter (Total $ proceeds - Total  $ cost / purchase price of the equity) and enter the

              $ Brokerage commission in Section 2 

            "or" 

             just Total $ proceeds from the sale.

I looked in the instruction and it does not state anything.

https://www.irs.gov/instructions/i1116#en_US_2023_publink11441fd0e4093

Namaskhar

[pk]

 Dear @girigiri ,         it is essentially the first option ---- to explain why 

(a) you entered your assets/equity sales on form 8949 --- where  line 1 (c)   shows your  Gross proceeds  I.e.  sales price less commission/ sales related costs,  1(d) your Acquistion cost/ basis AND  1(h)  the  computed  gain/loss  ( i.e.  1(d) LESS 1(e).

(b) US taxes you on this "Gain" under its own tax laws ( generally unhindered  by treaty conditions/ assertions )

(c)  when you did the  "foreign" country return you also recognized  the asset  disposal  based gain and  foreign taxes based on the laws of that land ( generally unhindered  by tax treaty ).

Therefore  on form 1116, you enter the  gain  from form 8949 as  "Gross Foreign Source In come"    --- note that this is summation of all foreign source  income by country and by type  ( Part-I, line 1(a) ) -- columns A / B /C

Similarly you enter the taxes paid top each country  in  Part-II

The reason  for this is that  the "gross " income  that is being doubly taxed  is  really the  US gain  ( in actual fact though in some very specific cases it may be the lower of  US gain  and the Foreign gain ).

Does this make sense ?

Regards, 

Namaste

pk

[girigiri]

Dear pk:

This makes sense and logical.  Thank you for providing clarity.

• Looks like  for Part 1 -  line 3e  where it asks for Gross income (From all sources) do we need to use the amount from Line 11 of 1040 (Adjusted Gross Income)? 

https://www.irs.gov/instructions/i1116#en_US_2023_publink11441fd0e4371

Namshkar

Giri

[pk]

Dear @girigiri , yes your income from all sources  ( your world income ) is generally on line 11 of the form 1040.

Namashkar

pk

[steiny1227]

Thanks you - this is the best explanation I have seen on this and is so simple I'm surprised I have been confused. My foreign dividends are getting taxed at LT cap gains rate (which is less than 25%), but I'm paying a 25% foreign tax, so any difference between those 2 is getting carried forward. Originally I was thinking I could get the full 25% foreign tax I paid back as a credit.