How to report 1116 income?

[tbudd]

QUESTION : How did you report the foreign income by avoiding 2555?

I'm trying to claim FTC (foreign tax credit) by filing form 1116 instead of filling in form 2555.

However, in order to claim the FTC, the foreign income needs to be reported under Wages/Income section, and the only way to do that seems to be through the FEIE (Foreign earned income and exclusion) interview, which triggers the 2555 scenario. Now, if I go ahead and manually delete the form 2555 (using the desktop app), I run into an e-Filing error that instructs me to complete form 2555.

[DanaB27]

If you had foreign wages or self-employment then you will need to file Form 2555 to report the foreign earned income and then you claim the foreign tax credit on this income on Form 1116 instead of using the Foreign Earned Income Exclusion.

If you do not want to claim the Foreign Earned Income Exclusion then select "No" to the "Do you want to try and exclude your foreign earned income?" screen during the interview:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “foreign income”
3. Click on “Jump to foreign income”
4. Continue through the foreign income section, answering questions as you go, until you reach the screen "Do you want to try and exclude your foreign earned income?"
5. Answer "No" then click "Continue" and follow any on-screen instructions.

If you only had income from foreign dividends or similar then you will not need to file Form 2555. Please see Claiming the Foreign Tax Credit with Form 1116 for additional information.

[tbudd]

Thanks for the response!

I'm somehow unable to navigate to the screen saying "Do you want to try and exclude your foreign earned income?"

Instead there's a screen where you are asked whose foreign income  you want to get excluded with four options (self, spouse, self + spouse, neither). I chose neither there.

[DanaB27 · Accepted solution]

Yes, if you are filing married filing jointly the screen is a little different. You made the correct selection and TurboTax will not use the Foreign Earned Income Exclusion. Therefore, you are able to claim the Foreign Tax Credit. 

Please see Where do I enter the foreign tax credit (Form 1116)  for additional information. 

[tbudd]

Yes, exactly that's what I'm doing.

Actually, earlier before your first reply, I took a workaround by making TT decide that I was ineligible for 2555 exclusions by failing the physical presence test, as I really don't meet the physical presence test criteria. That subsequently took to me a screen that asked me to explicitly delete the 2555 form (without me having to remove it following the Tools delete path). Subsequently I went ahead claiming the FTC.

One follow up question I have though is how I should go about reporting passive income (foreign interests) , besides foreign earner salary (that gets categorized as general category income) that I want to claim FTC on (on 1116).  Typically I report such foreign income by manually entering a 1099-INT form on TT, but the FTC guide seems to specifically ask to exclude 1099-INT data as passive income, even though in this case it's sort of made up 1099-INT.

[DaveF1006]

According to the 1116 instructions,  passive income generally includes dividends, interest, royalties, rents, annuities etc.