Form 1116-Foreign Tax Credit error “Adjusted Basis of Total investment assets” and the “Adjusted Basis of investment assets generating foreign income". Don't have.

[anlslate]

My 1099 doesn't provide the requested basis amounts.  Do I really need to get the total basis for each fund with foreign assets, and then multiply the percent of foreign assets in that fund, and then total all those to get this number?  If this is a required input, why isn't it already calculated on the 1099?  I'm told other tax programs don't ask for this information.

[pk]

If you are trying to get foreign tax credit for foreign taxes paid on Mutual funds , you have to provide the foreign income from those funds ---- because  allowable foreign tax credit for the current year is based on ratio of foreign income to world income.  Most mutual fund brokers statements do identify  the allocated foreign taxes paid but not the foreign earnings --- they usually provide the percentage earnings from foreign sources and it is up to you to compute the actual foreign income  that was subject to foreign tax. 

[John D]

The reply above talks about proportion of total income, which I can find on my broker statement.... but the TurboTax questions related to this and completing Form 1116 are assets about the adjusted basis of the investment assets that generate the foreign income.... so adj basis of assets amount generating the income and not the income number itself???   

[pk]

@John D m while the reply above is an old thread , it was intended for cases where the foreign tax credit is above the  safe harbor amount ( $300 for single and $600 for joint filers ).  The  foreign income to world income ratio is used to generate allowable  foreign tax credit allocation of the total US taxes  i.e. Foreign Tax credit worksheet, uses the world income to compute the  US taxes  and then allows credit of the US taxes for the  portion contributed by the foreign income thus the credit can never be more than US total tax on world income.

Does this answer  your query or did I misunderstand your question/comment ?

[John D]

Your reply seems logical but I am still unclear on what data input TurboTax is requesting as I try and clear the Smartcheck error.   The Smartcheck error that takes me to Section 4b(1) b-c  of the Form 1116 TurboTax worksheet - and is asking for the "adjusted basis of the investment assets generating the foreign income" (b) and "adjusted basis of the total investment assets" (c) - so as to calculate the ratio related to my investment interest expense carry-forward balance.   I do not know where to get these balances (not reported on the 1099's.  I could get these from statements for my interest and dividend income brokerage and other accounts as of Dec 31, 2019.... is that what I need to do? 

[pk]

what it is looking for  are two items -- total interest  & other expenses associated with this foreign income -- usually this is  zero and binned to USA since your account is in the USA; next it is looking for the total investment you have in these shares  that generate the foreign dividend and foreign taxes --- it needs the total and then will allocate the to each of the foreign columns based on income  from the underlying shares -- it is not a tax event.   

 Thus for a foreign  income ( dividend total ) of  2500, of which  500   ( underlying invetment of  4000 )came from Japan and  2000   ( underlying  investment of  20,000 ) came from China --- you would need to enter  investment expenses of  zero ( if there was none -- usual case ) and then enter 25,000 for the total investment generating the foreign income.  I am assuming here that you actually have  paid enough foreign taxes  for all this work to be worth it .   Generally if the income is  from Mutual funds  with underlying foreign  shares  -- you would have to use the funds ownership ratios to compute these factors.

Hope this helps.

  If you need , please provide  relevant foreign taxes  and dividends ( note this is  public board and so no personally identifiable  items ).

[John D]

Thanks -

I have $919 in foreign tax credit and have a much large carry-forward for investment interest expense deduction (i.e., it does not relate to the current year activity and actually arose from my spouse's 2016 return (Form 4952) when she filed separately before we married).  TT has this carry-forward amount for inv interest exp in to the Form 1116 worksheet on line 4b(1)a "Investment Inc Exp".  The carry-forward does not relate to the investments we currently have.  I now have calculated an estimate of the foreign part of our total investments at 12/31/19 values so I am planning to use that for the input on 4b(1) b and c.  It will calculate to about 13% foreign mix.  Is that the right approach? 

[pk]

Prima facie -- it sounds reasonable  and you  know what you are doing.  Just make sure  you have all the back-ups to  show how you came up with the figures  , in case you get challenged ( unlikely, but better to be prepared as a memory jog at least ).

Good luck

pk

[dahlialady8]

I need to remove the foreign taax paid credit from TurboTax

[pk]

@dahlialady8 , generally speaking to remove the  "request" for foreign tax credit, you have to go back to the screen where chose  that  (a) you have  foreign taxes paid  and (b) chose  foreign tax credit rather than deduction.   Therefore  please tell me a little bit more what your situation is --- is  this  from earnings  and taxes reported on a  1099-DIV or a broker's consolidated statement; or is this  for  foreign earnings   beyond the exclusion limit or what ?   I am looking to understand the  type of income / source of income  that has been taxed   at source.  Are you US citizen/Resident ( Green Card)/ Resident Alien for tax purposes or what ?  If indeed you paid foreign taxes on foreign  income  why do you not want to  take credit or deduction for it ?

Perhaps you can answer my questions and then we can  take care of how to eliminate  the offending item, please ?

[VKNK]

Hi Champ,

So what do you put for "Adjusted asset basis for investment assets" and "Total Adjusted asset basis" in your example of Japan and China? TIA.

[pk]

@VKNK , can you please either describe your issue or better start a new thread -- this is a very old thread ?

generally speaking the adjusted basis  of foreign income often has a treaty component. Hence the need for a clear articulation of the issue --- what type of income, which country, are you a US person ( citizen/Green Card, Resident for Tax purposes ), if you are on a visa -- what type; are you in the USA or abroad etc. etc.---please