Is the Foreign Tax Credit (F1116) math working correctly? My view is NOT.

[cbstewart]

Guys, here is what I see with the new update as of today:

Here is a simple example:

$20 in Investment Interest Expense

45% of my taxable investment assets generate Foreign Income.

F1116 calculates that $9 of Investment expense is attributable to Foreign Income

My expectation is that my FTC would be reduced by $9.  It is not!  It is reduced by the full $20 of Investment Interest expense. 

Does not make sense to me.  What am I missing?

[cbstewart]

The error is visible on 1040 Line 34 which shows the amount overpaid.  The amount I see matches the FTC before any investment interest expense adjustment (mentioned in my last post).   Let's say I overpaid $100.

On 1040 Line 35 the "amount of the refund you want" is only $80.  Reduced by the full $20 in investment interest expense. 

Why Lines 34 and 35?  It does not make sense to me. 

[DaveF1006]

It depends. in the first part of your question, Investment interest expense is a itemized deduction that is shown on line 9 of Schedule A if you itemize deductions. It should not factor into the computation of your foreign tax credit as it is not a credit. I would remove the entry wherever this is entered this to avoid additional confusion.

lines 34 and 35 in the 1040 should have nothing to do with what you claimed as an investment expense. Usually the difference in Lines 34 & 35 has to do with how you chose to receive your refund and if you wish to defer all or part of it to apply toward next year's taxes. It is a refund option that is offered.  

Remove the investment interest expense entry and see if this clears everything up. 

@cbstewart

[ Edited 03/03/22|01:12 PM PST]

[cbstewart]

Dave, thanks for the reply, I think it helped.  I did some more digging and think I have it sorted out.  I am going with the Turbotax assessment of the Foreign Tax Credit.  Anyway have efiled.