Hi, Turbotax states "You entered $X of foreign taxes paid. Now enter the portion of the $Y dividends and distributions that was from a foreign country or U.S. possession."
I have two mutual funds. One is a foreign stock fund that paid me $M in dividends and the 1099-DIV states that 90% of the dividends are foreign and 60% are qualified. Another fund is a federally tax-exempt muni bond fund where 2% of the $N dividends are from U.S. possessions (Guam, Puerto Rico, etc.).
Am I correct in my understanding that I need to enter 0.9M+0.02N in this box? Or is it only 0.9M? I believe this number then becomes box 1a on form 1116.
Also, where does the 60% come into play in TurboTax. It seems like this is unused information.
you can't take the foreign tax credit on the muni bond fund since that income is exempt from federal taxation
some taxpayers may need to adjust the amount of foreign-sourced dividends if they are qualified dividends.
See instructions for Form 1116 adjustment exception beginning on 10. read line 2 first because that may tell you quickly whether you are exempt from the adjustment
Thank you Mike.
This is new to me, so does this sound correct to you?
From p.9 of the 1116 instructions, I don't have to file schedule D and I must adjust the amount of my foreign source qualified dividends and capital gain distributions because both of the following apply.
- Line 5 of the Qualified Dividends and Capital Gain Tax Worksheet is greater than zero.
- Line 23 of the Qualified Dividends and Capital Gain Tax Worksheet is less than line 24 of that worksheet.
However, the adjustment exception also applies to me because:
- 1. Line 5 of the Qualified Dividends and Capital Gain Tax Worksheet doesn't exceed:
- a. $383,900 if married filing jointly or qualifying surviving spouse,
- b. $191,950 if married filing separately,
- c. $191,950 if single, or
- d. $191,950 if head of household; and
- 2. The amount of foreign source capital gain distributions (not sure where to find this info but as far as I am aware I have $0), plus the amount of your foreign source qualified dividends, is less than $20,000.
Thus, my understanding is I do not need to make an adjustment. Assuming this is correct, then back to my original question and your initial reply, I would NOT include the U.S. Possession dividends from the muni bond fund in the foreign dividends receive calculation when prompted by turbotax. Instead, I would only put 0.9M from my example. Does this sound right?