For Form 1116 1a. Gross income sources within country shown above;
Sold Mutual Fund: LOSS $5000 (Sales Price $30000, Cost basis $35000)
Dividend income : $500
Interest income : $1000
Number in 1a) should be
$ 31500 (Sales price 30000+500+1000) ? OR
$ - 3500 (-5000+500+1000) ?
I also have $2000 income to rent land out, but $0 taxed due to exemption under the country rules.
Should this income be included in 1a even No foreign tax involved on this income?
I would really appreciate if someone helps me.
With regard to the sale of the foreign mutual fund:
Here is the procedure to obtain the foreign tax credit for foreign taxes paid on foreign capital gains.
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
2. Before We Begin
3. Foreign Taxes
4. Tell Us About Your Foreign Taxes
5. Foreign Taxes
6. Do You Want a Deduction or Credit?
7. Reporting Foreign Taxes Paid
8. No Other Income or Expenses
9. Completing Forms 1116
10. Foreign Tax Credit Worksheet
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 “Fgn. 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
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. Leave it blank.
Continue thru the remaining screens until finished.
With regard to the rental income, do report the income even though no foreign tax was paid. Doing so will help increase the foreign tax credit limit which is favorable.
Dear. rogge 1722
Thank you very much for your details guidance. I really appreciate it.
I will work to get done by following your guidance this afternoon. I might have another question but I just want to say "Thank you very much" to you now!