Foreign Tax Credit

[user17735155881]

My husband and I have foreign source income from 2 different funds, both of which are held in the same brokerage account.  The 1099-DIV for the brokerage lists a total of about $1300 of foreign tax withheld, $1100 from one fund and $200 from the other.  The two funds have different foreign source income percentages and we're trying to figure out how to enter separate information for the two funds since the 1099-DIV from the brokerage lumps the dividend and foreign tax amounts together.  We appreciate any helpful advice.

[pk · Accepted solution]

@user17735155881 , considering that  your foreign source income and  foreign taxes thereon are:

(a) more than safe-harbor (  un-limited by form 1116 ) amount of US$600  on an MFJ filing, you have no choice but to file a form 1116 if you wish to claim Foreign Tax Credit

(b)  your statement that your  foreign source dividends are from  "funds" leads me to believe that these are  Mutual Funds  ( with Foreign investments ) and thus  for purposes of  Form 1116, source country is generally reported as RIC ( Regulated Investment Company )

(c) Your Broker's statement should somewhere  should detail --- percentage  of foreign investment, percentage of foreign source  dividend/income.  This should allow you to compute  Foreign source  income ( from the total dividend income for the fund ) and corresponding  foreign taxes  on that income.  Else you can call your broker  and he/she should be willing to help/guide you with the figures you need.   

For Form 1116 you need  Foreign Source Income ( allocated based on percentage or directly from broker ) and  Foreign Tax  ( allocated  based on percentage or directly from broker).

(d) Note that when all is said and done,  form 1116 , while recognizing the full amount of foreign taxes paid , allows ONLY the lesser of  actual FT paid  and  US taxes imposed on the same doubly taxed income.  Also, because this FT Credit being Non-Refundable, it is further limited by available   taxes levied  ---  FTC can only reduce your  otherwise  tax liability to zero but not below that.

Does this make sense ?  Is there more I can do for you ?