Foreign Tax Credit

[vinaykumar1405]

I received foreign income - only through rental income from foreign property and from selling some mutual funds. I did not perform any work or receive any tax forms from outside of USA. I also paid and filed foreign taxes on that income (in India). From my understanding there are double taxation considerations and I should not have to pay taxes here on that income - correct? but when I entered the information about rental income - it dropped my refund to amount owed. Please help on how to fill the foreign taxes forms.

[MonikaK1]

If you are a US resident filing a US tax return on your worldwide income, a way you may be able to get a tax benefit for taxes you paid to another country is to claim the Foreign Tax Credit on your US tax return.

Taxes paid to other countries qualify for the FTC when:

• You paid the tax on your income to a local or provincial government.
• You were legally obligated to pay the tax
• You have already paid or accrued the tax.
• You did not gain from paying the tax.

There are also some taxes that cannot be included in the FTC:

• Taxes on income excluded from your U.S. gross income (If you do not include wages earned in another country as part of your U.S. income, you cannot claim a credit for foreign taxes paid on those wages)
• Taxes paid to a sanctioned country
• Sales tax, value-added tax, real estate taxes, or luxury taxes paid to a foreign government
• Taxes on foreign mineral, oil, and gas income
• Taxes from international boycott operations
• Taxes related to a foreign tax-splitting event
• Social Security taxes paid or accrued to a foreign country with which the U.S. has a Social Security agreement

In TurboTax Online, go to Estimates and Other Taxes Paid under Deductions & Credits and select Foreign Tax Credit to enter your information about the foreign taxes paid. You should complete the entire TurboTax interview in the Foreign Tax Credit section in order for your Form 1116 to populate correctly. TurboTax will determine whether you qualify for the credit.

See this article for more information on the Foreign Tax Credit, Form 1116, from TurboTax.

[vinaykumar1405]

"In TurboTax Online, go to Estimates and Other Taxes Paid under Deductions & Credits and select Foreign Tax Credit to enter your information about the foreign taxes paid."

I am able to follow along all the way to "Estimates and other taxes paid" -- but, I do not see a Foreign Tax Credit option. What do I do?

[AmyC]

To enter the foreign tax paid:

1. Go to deductions and credits
2. scroll until you see Estimates and Other Taxes Paid
3. Select Foreign taxes
4.  As you go through, you will choose itemized deduction or credit.

See:

• Where do I enter the foreign tax credit (Form 1116) or deduction?   Note, you can try both options. The credit is most commonly used.
• To claim the credit, see Claiming the Foreign Tax Credit with Form 1116 - TurboTax
• Tax Treaty with India

[vinaykumar1405]

Okay found that option by going into summary/review page and then was able to follow the directions. Originally, I was trying to click on the tabs on the left side and it did not show the options.

I do not have a 1099-INT or other such forms as the income was a rental income in foreign property and the tax was paid in that country (Just FYI, India). Without a 1099-INT form, will I not be able to complete this section?

[AmyC]

Follow these steps:

1. Return to the Foreign Tax Credit and select
2. Yes
3. Before We Begin, Yes
4. Continue
5. Select none of these apply, continue
6. continue
7. credit, continue
8. Other income rules, No
9. continue
10. continue
11. continue
12. Select Passive income for a rental house
13. continue
14. Select blue Add a country
15. Select India
16. continue
17. enter the description 
18. enter the USD for the India income
19. continue
20. enter any related expenses
21. continue
22. enter explanation of how you calculated expenses
23. continue
24. enter foreign losses related to India as a positive amount
25. continue
26. Foreign Taxes Paid, select No -for rental
27. enter foreign taxes on rentals
28. continue
29. enter AMT - if applicable
30. continue
31. done

[2626Beckwith]

Amy,

Thanks but I was specifically looking at being able to skip the complications of Form 1116 (and it’s allocations) even when having more

than $600 in foreign paid taxes.  The previous reply from another TurboTax Employee Tax Expert did answer my question.

Best,

Steve

[confusedabd]

@AmyC Looks the UI has updated under Estimates and Other taxes paid it shows > Foreign Tax credit (instead of Foreign Taxes). IF you select that to go through interview process, it says - "We'll check if you are eligible". Then it says:

"Before we begin, do you have any income left to enter?

To see if you qualify for a tax break from the Foreign Tax Credit, we need to know how much income you have from all sources, including any dividend income (from your 1099-DIV) and interest income (from your 1099-INT). Learn more"

I select Yes. Since I did already enter foreign income and foreign interest income. After I click Continue - it says you don't qualify for foreign tax credit.

Not sure what I am missing since I do need to report the taxes I have already paid on the foreign pension income and foreign interest income. Do we need to manually generate 1099-INT? 

[confusedabd]

@AmyC I managed to manually entered foreign interest income and foreign taxes paid in 1099-INT. However, I am struggling to find a place where I can enter my foreign pension income and the corresponding taxes paid for it. After walking through 1099-INT foreign income, I select General Category income and this is where it lands. Doesn't ask the income or foreign taxes paid.

Other Deductions Not Definitely Related

Enter any other deductions for general category income that are not definitely related to the gross income on this worksheet.

Description Amount   First Deduction

[Mike9241]

a single taxpayer can skip the 1116 if the FTC on passive income is $300 (joint return is $600) or less.  if there are other categories an 1116 for each category is required. 

there is another issue you may not be aware of. the US has tax treaties with some countries. in such cases a foreign pension might only be taxed in the resident country.  if exempt from taxation in the US form 8833 must be included with the 1040. Turbotax does not do this form. to further complicate the matter, if available is it better to exclude the income from US taxation or report it as income and take the foreign tax credit 

to give you further guidance, please provide the name of the country in from which you received the pension, and your country of residence. 

here's an example of the effect of the treaty with Canada

Canadian pension income is considered taxable income equivalent of US social security benefits for tax purposes. However, the tax treaty between the U.S. and Canada allows these benefits to be taxed only in the country of residence, so a Canadian resident receiving OAS and CPP may not be subject to taxation in the United States.

[confusedabd]

Thank you Mike. Wow, did not realize things are this tricky. I have government pension from India after retiring from my job. It will be really helpful if you are able to provide details on how I can enter my foreign income and the corresponding taxes paid or if it even applies.