How do I determine total investment assets on Form 1116 so I can allocate investment income expense to foreign income?

[tuxedorose]

@pk thanks for trying to reproduce the problem.   i dont think im going to try  to help INTUIT debug their s/w 🙂   but I am getting the hang of switching between the easy answer vs doing open heart surgery on the forms themselves. its great that they let you enter data directly into forms and let you hyperlink to where the calculations come from

[will1ellen]

Does TOTAL assets include my rental real estate assets?   Other brokerage accounts?

WillEllen

[JoannaB2]

No, rental real estate income is business income, but your brokerage account is considered investment income. Generally, investment income includes capital gains, interest income, dividends, and all other financial investment income.  You may only claim foreign tax credit up to the amount of US taxes.

[will1ellen]

But I am not in the real estate business.  Just a single house that I rent out.   TurboTax worksheet for form 1116 Foreign Tax Credit, line 4.B.1.C Adjusted Basis of TOTAL Investment Assets seems to include everything like a real estate investment.   Please Clarify

[pk]

@will1ellen  agreeing with @JoannaB2  about the treatment of assets, just wanted to point out that  as far as foreign  tax credit goes  --- 1. the total foreign taxes paid on income is recognized  dollar for dollar; 2.  the allowable  foreign tax credit for the tax year under question is based on a ratio of  US tax on  foreign  income  to that on world income ; 3. unallowed foreign tax credit is eligible for carry back one year and carry forward for 10 years ( as long as there is  foreign source taxable  income in that year ).   TurboTax   and form 1116 does this  work for you.

[pk]

@will1ellen , can you tell me a little bit more of your situation --- (a) are US citizen/Resident/Resident for tax purposes; (b)  is your tax home in the USA or are you abroad; (c) which country is the rental property in;  (d) the taxes you paid  to the foreign taxing authority is a flat fee  ( based on size or location or ?? ) or based on actual gross/net rent; (e) did you file a  schedule-E  for the rental property; (f) is this your first year of rent; (g)  did you recognize depreciation on the property  ?      I ask these  because I am not sure I understand why you are  trying to allocate  interest expenses across  diferent investment ( work sheet referenced area is for that purpose only ).

Await your answers

[sweerkaul]

I have an income from a foreign country in the form of 1099-DIV and interest income from saving bank accounts. How can I calculate the "Adjusted basis of investment assets generating foreign income" and also "

Adjusted basis of total investment assets"  ?

[pk]

@sweerkaul , assuming that your 1099-div is from a US financial/brokerage there usually will be no adjustments to basis.   Adjustment  to basis is  mostly used  for cases where  Tax Treaty  dictates  taxation rate of the  income.

If your investment ( producing  dividend and interest incomes) are  being controlled by you and not through a US brokerage, then I need to know the country where your investment is  to be able to investigate this further.  Also I am assuming that you are a US person  in 2020 ( i.e. US citizen/ Green Card / Resident for Tax Purposes).

[sweerkaul]

@pk Yes I am a US person for year 2020 and my 1099-DIV is from a US financial/brokerage . On my 1099-DIV it shows the Foreign Tax Paid and the Foreign Country to which the Tax is paid is ISRAEL.

Apart from this 1099-DIV , I have also received the interest income from Saving Bank accounts in INDIA.

So knowing all this , can you please suggest how should I answer ( calculate) these below questions from TT :

Adjusted basis of investment assets generating foreign income ? 

Adjusted basis of total investment assets ?

[DaveF1006]

Yes. I can give you some basics on what the question is asking. 

1. You may have a number of investments overseas that generate foreign income. In these investments you have basis and that is the cost to purchase these additional investments.
2. During the period of time your owned these investments, your basis mat have appreciated. You may have contributed more money into the investments. There may have dividends that may have been redistributed and the investment portfolio may have appreciated because of a favorable interest rate. 
3. Original Basis plus all of the other increases is your adjusted basis. Unusually, if you keep records, you may have this information handy.
4. Now if I understand the 4th question correctly, it's asking for the adjusted basis of all your assets.  These are all your investment portfolio both domestic and foreign.

[pk]

@sweerkaul  as I understand the  treaties {a}    US-Israel  ( dividend  tax limited to no more than 25% ) and        {b} US-India ( Interest may be taxed in India  at 10 or 15% ), I do not see any reason for basis adjustment.  Thus  for you total  investment basis  is the  same as reported  by  your brokerage ( for Israel) and Bank ( India).

BTW --- if your total of foreign taxes  is less than / Equal to   safe harbor amount  ( US$300 for single filer  / US$600 for a joint filer), you could use the simple method and not have to go through the form 1116 for foreign tax credit.   Note that if your world income  is more than  your foreign income, then your foreign tax credit allowed for the year would be  reduced  by a ratio.   Thus  if your total foreign taxes  are not too far above the  safe harbor amount and you have US sourced income, it may be advantageous to limit the foreign tax  recognition to the safe harbor amount and not bother with form 1116.  

Is there more I can do for you  ?

pk 

[sweerkaul]

Thank you @pk . I am required to file the FORM 1116 as my total of foreign taxes is more than 600 $ .

I checked my 1099-DIV from my US brokerage and I don't see anywhere it mentioning any basis. This is what it shows on my 1099-DIV.

Total Foreign Source Income*                         xx $

Qualified Foreign Source Income**               0 $ (Zero dollar is the actual amount that it shows on my 1099-DIV)

Foreign Tax                                                          x $

* Total Foreign Source Income utilizes the "Total" column for RICs which may not always be supplied.

** Qualified Foreign Source Income utilizes the "Qualified" column for RICs which may not always be supplied.

Also for the interest income from India , I do not get a 1099 from India . I have calculated my interest income from the bank statements . These statements tell me how much interest I got for the year and how much was withheld by the Government of India. This withheld interest income is the foreign tax credit that I am claiming here in United States.

Looking at my situation , can you please guide me how I can derive my basis for the 1099-DIV and interest income from India ?

[pk]

@sweerkaul , without trying out the scenario  on my copy of TurboTax ( desktop ),  I wnet back and looked at the form 1116, made a dummy version fillout  completely by hand and then  searched / inspected the instructions for the form 1116 for the use of the word "basis" or "adjusted basis".   My conclusion is that  somehow we are misusing the word basis in this context  ( probably TurboTax error but I have yet to verify that ).  

If you look at the form 1116, it deals  ONLY with  "foreign sourced income",  "Total Income from all sources", "deductions" ( standard and/or itemized),  Adjusted Gross Income, foreign taxes  paid/accrued,  Taxable Income,  Total Tax on Taxable  income.  That is it .  There is no place for basis or cost of your investment generating the foreign income(s).   Are you using On-Line version or desktop version of TurboTax ?

I would use your  foreign dividend income; foreign taxes paid  date ( 12/31/2020 is usually what  I use ); amount of foreign taxes paid, country where the income came from;

Ditto for  Interest income.

This should all TurboTax  to fill out the form 1116 with the requisite numbers.

Leave all the  adjustment s alone -- it is not applicable for Israel or India and not for the passive incomes that you have.

That should work-- let me know if you need more help  --- if the  post becomes NOT of general interest then you can PM me with details  and we can go on from there

Stay safe

[sweerkaul]

Thank you @pk again for all your help and looking into this .

I am using the Turbo Tax online version and when I am reaching for the Federal Review , its asking for me to review the answers. On clicking on the Review button , it's taking me to FORM 1116 (COPY 1) . At the top of the form I can see this written as the heading " Foreign Tax Credit Computation Worksheet ".

Now in this form , its asking me to answer the questions : 

4 (b) 1 (b) Adjusted basis of investment assets generating foreign income , and

4 (b) 1 (c) Adjusted basis of total investment assets

If I choose to leave them blank and go ahead , it again goes to the Federal Review and there it again takes me back to this form to answer these questions.

[pk]

@sweerkaul , please give me till sometime tomorrow and I will  replicate the scenario and  see what TurboTax is doing -- will come back tomorrow  during my afternoon ( I am in PDT )

sorry for the delay 

pk