Form 1116 -- long-term capital gain distributions

[Keithton]

The Foreign Tax Computation Worksheet in Trubotax has a line for qualified dividends and long-term capital gains distributions. Vanguard adn others have percentages used to determine foreign qulaified distributions but do not indicated for their foreign stock mutual funds what percentage of long term capital gains (Box 2a on the 1099) are foreign. Should long-term capital gains be included on the worksheet as reported on the 1099 for this line and in the line for foreign gross income as a separate item from foreign interest adn dividends. Vanguard cannot provide any information about the long-term capital gains distribution.

[rogge1722]

Most broker/payers do not provide any detailed info regarding the source of the capital gains distribution in box 2a of the 1099-DIV. If Vanguard does not provide the sources, then ignore the distributions and only enter the foreign qualified dividends.

[Keithton]

Unfortunately, for me, not including capital gains distributions reduces the tax credit. Vanguard and others should be required to provide information on how much of the capital gains distribution is foreign source income.

[SusanY1 · Accepted solution]

The capital gains distributions are often not eligible for the foreign tax credit, because foreign taxes weren't paid for them by the fund.  That's why the information isn't given and shouldn't be included on the Form 1116.  

You can only take a foreign tax credit for the foreign income that is identified as having paid foreign taxes.  That rarely includes the capital gains distributions and when it does the information should be provided by the broker.