A community answer tells me how to claim a foreign tax credit without filling out Form 1116 "if you qualify for the exemption". Do I qualify?

[SamCh]

We are married,filing jointly. Foreign taxes on our dividends were $255.

[DanO · Accepted solution]

Yes, from the information I see here, but to be sure here are the requirements to qualify for claiming the foreign tax credit without using the Form 1116.

1. Your only foreign source gross income for the tax year is passive income, as defined in Publication 514 under Separate Limit Income.
2. Your qualified foreign taxes for the tax year are not more than $300 ($600 if filing a joint return).
3. All of your gross foreign income and the foreign taxes are reported to you on a payee statement (such as a Form 1099-DIV or 1099-INT).
4. You elect this procedure for the tax year.

Passive Category Income from IRS Pub. 514

• Passive category income consists of passive income and specified passive category income. Passive income. Except as described earlier under Income from controlled foreign corporations and Partnership distributive share, passive income generally includes the following.
• Dividends
• Interest
• Rents
• Royalties
• Annuities
• Net gain from the sale of non­income­producing investment property or property that generates passive income.
• Net gain from commodities transactions, except for hedging and active business gains or losses of producers, processors, merchants, or handlers of commodities.
• Amounts includible in income under section 1293 of the Internal Revenue Code (relating to certain passive foreign investment companies).

If you receive foreign source distributions from a mutual fund or other regulated investment company that elects to pass through to you the foreign tax credit, in most cases the income is considered passive. The mutual fund will provide you with a Form 1099­DIV or substitute statement showing the amount of foreign taxes it elected to pass through to you.