Foreign tax credit - "foreign source qual div and l.t. capital gains?" - numbers don't make sense

[gtlong2]

Working through the Foreign Tax credit section and need some help.

Everything here is associated with a half dozen foreign mutual funds.  All 1099-div, no sales of the funds.

Question 1

I go through the interview process of entering the foreign source income.  In the interview and help boxes, it continually references Box 1a and 'dividends', but for each fund, it quotes an amount of "total income" which appears to not only include the dividends, but ALSO the capital gains distributions for that fund.   So, when I enter in Foreign Source Income in the box, is it only the foreign portion of the *dividends*?   or all the income including the cap gain distributions from box 2a for each fund?

I then confirm this is 'passive income'

Question 2  

The next step asks "Any foreign source qualified dividends or long term capital gains?"   It includes the foreign income that I entered in the previous step (based only on the dividend income).     Are "long term capital gains" in this question the same as capital gains distributions from box 2a on the 1099-DIVs?   If so, these numbers are much bigger than the income I already entered.  So, how do i handle this as it won't let me enter a number that is bigger.    

It also appears to have a minimum value, saying "This field should be at least $x,xxx"  Where does this number come from?   And what value should I be putting in here?

As of now, it looks like the foreign tax credit appears to be calculating as a full and direct credit to my Fed taxes.  So not sure if this is right or whether any of it matters.

Any help would be appreciated.

[FangxiaL]

The foreign tax credit is used to reduce your federal tax dollar for dollar if you decide to take the credit rather than itemizing it on Schedule A. 

In your composite 1099s, the dividend income from each mutual fund should be listed in detail. Look through the pages, add the fund dividends with foreign tax paid on the lines and enter them in the boxes. If there is no capital gain, it won't be listed. Do not use the number reported in Box 1a on the 1099-DIV form, unless all your funds are international ex U.S.

Based on the foreign passive income, you may or may not be able to use all the foreign tax credits. The unused portion will be carried forward to next year. 

[FangxiaL]

The foreign tax credit is used to reduce your federal tax dollar for dollar if you decide to take the credit rather than itemizing it on Schedule A. 

In your composite 1099s, the dividend income from each mutual fund should be listed in detail. Look through the pages, add the fund dividends with foreign tax paid on the lines and enter them in the boxes. If there is no capital gain, it won't be listed. Do not use the number reported in Box 1a on the 1099-DIV form, unless all your funds are international ex U.S.

Based on the foreign passive income, you may or may not be able to use all the foreign tax credits. The unused portion will be carried forward to next year. 

[gtlong2]

Sorry, this really didn't address any of my questions.   I've used the mutual fund company information to adjust the dividends from box 1a to determine 'foreign source'.     there are lots of capital gains distributions, but the interview questions aren't clear whether to include, and then how to handle the final question since they exceed the foreign source income entered.  Please see my specific questions if they can be addressed?  

[rogge1722]

When you go thru the foreign tax interview, the screen with the header Foreign-Source Income states you reported $XXXX of total income from a specific 1099-DIV. How much was from foreign countries?

That amount displayed is the total of 1a + 2a +2b+2c+2d+3. From the payer's supplemental info, you will be able to extract from box 1a the foreign ordinary dividends (qualified +unqualified) and the foreign qualified dividends. The difficulty is to extract the foreign amount from the remaining boxes.

In most cases, this cannot be done, so the amounts in these boxes can be considered domestic and will have no bearing on foreign transactions. Box 2a especially causes issues. It is the capital gains that mutual funds/ETF's incur when they sell stocks and pass the amount to the shareholders to be taxed. The problem is that we have no way of knowing whether the stocks were sold on a U.S. or a foreign exchange or both. The result is from the payer's supplemental info, if it cannot be determined with certainty the foreign amount of any box, assume it is domestic and ignore it for foreign purposes.

The following procedure displays how the dividends inter-relate.
Open a new spreadsheet.

Column A is used for both qualified and unqualified dividends, aka. “Ordinary dividends”.
Column B is used for qualified dividends only.

In cell A1, insert the worldwide ordinary dividends. This is the amount in the 1099-div, box 1a.
In cell A2, insert the foreign ordinary dividends. This amount is derived from the broker’s supplemental info.
In cell A3, subtract A2 from A1. The result is the U.S sourced ordinary dividends.

In cell B1, insert the worldwide qualified dividends. This is the amount in the 1099-div box 1b.
In cell B2, insert the foreign qualified dividends. This amount is derived from the broker’s supplemental info.
In cell B3, subtract B2 from B1. The result is the U.S. sourced qualified dividends.

Each cell in column A must be equal to or greater than the corresponding cell in column B. If that is not the case then there is an error. Recheck all entries..

During the interview, it will ask for the foreign-source income. That is the amount in cell A2. As stated above, no other foreign income can be determined, if any.

Later it may ask for foreign sourced qualified dividends and LT cap. gains. That is the amount in cell B2. As stated above, the foreign LT gains are ignored because the foreign amount, if any, cannot be determined.

[RajeshR]

I'm facing the same issue as the original poster. I did exactly as stated, but I cannot proceed past the form with the question "Any foreign source qualified dividends or long term capital gains?". It asks me to enter the amount for "Foreign Qualified dividends and lt capital gains", and when I enter the amount I've calculated (by looking at the Fidelity and Vanguard's supplemental detail that shows the percentage of Box 1a that is foreign qualified income), it refuses to take that amount and shows in red  the error "The field should be at least $XXX". Where does it get that amount from? I'm stuck here since it does not let me proceed.

[jkalexndr]

I have the same issue  " This field should be at least ####.   I have utilized the percentages that I got from the brokerage websites.   

[AmyC]

If you enter $10 income and $12 tax, the program knows that does not make sense. Somehow, the numbers you are entering are not enough income for the tax you paid. The program is telling you that for that tax, this much income should be reported. You may need to check your tax entries, it could be the income is right and the tax entered is wrong. You need to verify both the income and the tax and they should be reasonable when compared. You may need to contact the broker to help explain the statement. Some of them can be quite confusing.

@jkalexndr 

[RajeshR]

My understanding is that AmyC's response is incorrect. I have entered all numbers that meet the reasona blre criteria that she mentions. In fact, they were calculated based on the total tax, and hence any qualified income, foreign tax that I used is valid. I made sure that these were lesser than the "total" amounts that she suggested.

My conclusions is that TurboTax has a bug, ie., a false positive in terms of what it flags. I did not have the same issue this year, even though I did the same process (and double checked for errors just like last time). I think they will never acknowledge the bug or even contact me, but I hope this helps the others facing the same bug. They just want these comunities to be self-serve so they don't have to spend resournces on it.

[jkalexndr]

I resolved the issue.  The percentages that the brokerage company gives are all off of the total dividend.   I was calculated the amount off of the qualified amount which gave me the issue.