foreign inheritance tax Savings Bond Interest 1116 K-1

[patamelia]

Hello,

I inherited a 30 yr. US savings Bond and paid German inheritance tax on the total bond value of which appr. 75% was interest. I will enter the foreign taxes paid on form 1116 passive activity form Part II line A(t).

The problem is that in the foreign country, I only have to pay 11% inheritance tax over a certain amount.

Can I just use the 11% tax, I have more than the foreign exclusion?

Or:

Must I use a multiplication factor?

Foreign taxes / (Tax free Amount + Foreign Inheritance Interest)

Or is there another way.

I filled out the Schedule K-1 Worksheet  Estates And Trusts, but there was no tax-exempt interest. On schedule B the total K-1 interest in included.

[JotikaT2]

It sounds like the amount paid in Germany was actually an inheritance tax, and not an income tax on earnings.  If that is the case, you cannot claim a foreign tax credit since no foreign income tax was paid on the income from the US savings bonds.  

For more information on how to report this inheritance on your personal tax return, please see how do I report savings bond interest for a deceased taxpayer.