Form 1116

[dzimmer10]

In my situation, I have $228 of investment expense in Box 4B1A.  This is US-based investment expense from my K1s. In 2024, this was marked as US based and I didn't have to fill out the additional boxes below. This is no longer marked this way or at all.  Should this value even be in the noted box since it doesn't apply to foreign tax calculations?? This US-base investment income is what is driving the need for Boxes4B1B and 4B1C ro be populated by me.

[pk]

@dzimmer10   what is your total gross foreign source income from all foreign sources ?

If the total  gross foreign source from all form 1116 is greater than US$5000,  then the deductible  investment expenses ( from Schedule-A) , will be allocated  between all sources of income ( world and the different  foreign sources).  What the form is trying to do is compute the taxable income  from each of the sources  and thereby compute a ratio for allocation of computed total tax between sources.

Does this make sense ?

[dzimmer10]

My total amount of foreign income is $5300 so above the $5K you mentioned. However, all the investment income expense comes from US investments.  Why would it need to calculate how much is allocated to foreign versus US investments in this case? Or am I missing your point?

[DaveF1006]

If your foreign income is over the de minimis threshold ($300/$600, or the $5,000 gross limit you mentioned), you are required to "apportion" expenses. The formula generally looks like this.

1.  Expense allocated to foreign source = total expenses X (Gross foreign gross income/ total Gross income). 
2. The investment income is calculated and reported as a total in the total gross income. Total gross income is ALL INCOME reported and used in the calculation of the foreign tax credit as well as the apportioned expense.

@dzimmer10 

[dzimmer10]

Thanks...I understand what it's trying to do.  However, since none of the investment expense is foreign, why does it even to try apportion it? Shouldn't that bypass this calculation?

[dzimmer10]

I filled in the Form Comp Worksheet as you described and it attributed $206 of my US $228 investment expense to foreign income. Does this make sense given it was US based investment expense?

[pk]

@dzimmer10 , while this looks arbitrary i.e. allocation based  purely on  quantum of income  from diff sources rather than actual amount for each source,  it is a standard method applicable to all.  I don't think you can over-ride this.  Also note that the actual effect may or may not be  that severe ( at least in most cases), because it just shifts  the  load  and therefore may affect the allowable FTC ( even if small ), but  not the total Foreign Tax Credit available.

Is there more one of us can do for you ?