Foreign dividends received

[AllTheFries]

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.

[Mike9241]

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

https://www.irs.gov/pub/irs-pdf/i1116.pdf 

[AllTheFries]

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?