Foreign tax credit--what can I include as the basis?

[Spino]

I have a few foreign stocks, bought on US exchanges, and this year I have a foreign taxes paid amount. What can I include as the basis?

1) Can I include only dividends, not stock sales?

2) Can I include all foreign stock dividends, or only those that were specifically taxed?

3) Can I summarize the things I include as various and measure it against the whole tax amount, or do I need to separate out country by country or stock by stock?

Thanks in advance for anyone who can help me with this! So far my impression is that I can only include dividends, not sales, that I can only include dividends that were taxed, not all foreign dividends, and that I can show the countries as various and measure it against the whole tax amount. (For reference, the foreign tax amount is about $900, it appears I have one or two stocks that were taxed, and I have 4 or 5 foreign domiciled stocks.)

[pk]

@Spino  I am not sure I fully understand your situation.  What I get is  that  (a) you a US person  ( citizen/Resident/Resident for tax purposes); (b)   tax home is USA; (c) have invested through US broker in stocks/ bonds; (d) have dividends  and stock sales  which may have attracted foreign taxes to the tune of US$ 900; (e) want to take credit for taxes paid to foreign tax administration.  Please correct me  if I have misunderstood / misconstrued the situation.

Generally, what you are trying to do is ameliorate the effects of double taxation since  USA taxes you on world income and the foreign tax admin may also tax the same  income component as  in-country sourced income.  The  Tax treaty between  US and that country  will often address the specific  modalities of reducing the burden of double taxation and thus the income source country becomes  germane.

 Foreign Dividends  ( generally non-qualified)  are in a different category ( Passive) than the  foreign Capital Gain/loss and may also require adjustments  because of treaty considerations.

Thus  really need  more info  on the exact situation   ( facts and circumstances ) that you are referring to.  

Note that  for foreign tax on dividends  there is  the  safe harbor treatment  available.  Also for  capital gain/loss  , especially  in real-estate there  may be differences in how the gain/loss is computed.

May I suggest a reading of the instructions for  form 1116.   If you need more help, please consider  describing  the situation in more detail ( with  fictitious  / approximate  dollar figures ).

Await your answer  

[Spino]

Thank you, @pk for your reply. By now, I have filed.

Here's what I found:

1) I can include both foreign source dividends and capital gains on foreign source sales in the basis.

2) I do not need to only include the specific income that was taxed, it can all count against the tax.

3) It does not need to be segmented country by country, but can all be summed together as foreign source income (all countries) and foreign source taxes (all countries.)

4) You bring up the issue of tax treaties, but I believe this has a lot more to do with people who are resident internationally. I do not think it usually applies to passive income like this for non-residents (of foreign countries that have tax treaties [usually about how to treat residents in each others' countries.])

5)  As you mention, there is a de minimus exclusion where I don't need to even document it. I think until this year that has always worked for me.

Note: The importance of figuring the basis is that if the tax rate is higher than my US tax rate, then only a portion of the tax is tax-deductible and the rest needs to be deferred to another year and counted against other foreign income. But the fact that this is allowed shows the consistency of including all foreign income against all foreign tax, kind of like including all business income against all business losses. 

IF anything I'm saying is wrong here, please let me know!

[noodad]

---

@Spino wrote:

[...]

4) You bring up the issue of tax treaties, but I believe this has a lot more to do with people who are resident internationally. I do not think it usually applies to passive income like this for non-residents (of foreign countries that have tax treaties [usually about how to treat residents in each others' countries.])

[...]

---

I'm running into a similar question. But, @Spino from looking at https://www.irs.gov/individuals/international-taxpayers/foreign-taxes-that-qualify-for-the-foreign-t..., especially Example 1, which I think applies here:

---

Example 1:  You received a $1,000 payment of interest from a Country A investment.  
Country A’s withholding tax rate on interest income is 30% ($300), but you are eligible for a reduced treaty withholding rate of 15% ($150) if you provide a reduced withholding statement/certificate to the withholding agent. Your qualified foreign tax is limited to $150 based on your eligibility for the reduced treaty rate, even if $300 is actually withheld because you failed to provide the required withholding statement/certificate.

my understanding of that is that we would have to limit the amount of the credit if there's a treaty in place which limits the tax actually owed in order to reduce the double taxation. In my case, the country in question is Germany and there's a treaty which sets the rate at 15%, so I believe that would limit the amount of the credit.

For better or worse, though, the TurboTax version I'm on (online, Self Employed) seems to think otherwise. So I'll have to post that as a question