Good morning,
Could someone please confirm/correct the following:
When filling FTC form 1116 for Passive income:
-Line 1a (gross income within specified country for the specified category), should only include foreign-sourced passive income, correct? (US sourced income shouldn't be included here). This seems obvious to me but my tax preparer included the US-sourced income which which confusing to me.
-Line 3e (Gross income from all sources). When including rental income, should include the net rental income after expenses. Again this seems obvious to me as that is the taxable amount but tax preparer says the amount before expenses is what should be included.
Thank you
Form 1116 - Passive Income questions
Moderator: Mark T Serbinski CA CPA
Re: Form 1116 - Passive Income questions
Did some more research and confirmed using tax software that the Line 3e (Gross income from all sources) should include rental income before expenses, so I was wrong about that.
However it seems that I was right about Line 1a (gross income within specified country for the specified category). It should only include the foreign passive income.
So for the following income:
1-Foreign earned income
2-Foreign capital gains
3-Foreign interest in TFSA
4-US dividends
5-US savings bond interest
only 2 & 3 should be reported on line 1a
and foreign tax paid should only be calculated for 2 since 3 is not taxed in Canada.\
Feeling confident about this but would certainly appreciate input from folks who have done this.
thanks.
However it seems that I was right about Line 1a (gross income within specified country for the specified category). It should only include the foreign passive income.
So for the following income:
1-Foreign earned income
2-Foreign capital gains
3-Foreign interest in TFSA
4-US dividends
5-US savings bond interest
only 2 & 3 should be reported on line 1a
and foreign tax paid should only be calculated for 2 since 3 is not taxed in Canada.\
Feeling confident about this but would certainly appreciate input from folks who have done this.
thanks.
-
ein_steuermann
- Posts: 1
- Joined: Tue Apr 01, 2025 2:25 pm
Re: Form 1116 - Passive Income questions
I'm in a similar boat, trying to figure out how to claim FTC on US-sourced income, as a US citizen resident in Canada.
Are you also completing the worksheet ("Additional Foreign Tax Credit on U.S. Income") form IRS Publication 514? (https://www.irs.gov/publications/p514)
Some questions for you:
- What tax software are you using?
- Are you completing the worksheet in Publication 514?
- Did you include foreign taxes on your items 4 and 5 (US-sourced dividends and interest) in Part II of Form 1116?
The instructions for Form 1116 point to Pub 514, and the instructions in Pub 514 indicate that one should complete the worksheet to compute the additional credit from re-sourcing the US-sourced income.
The worksheet walks you through computing the credit, and tells you how to adjust the values in Form 1116:
>"This amount may be claimed as a foreign tax credit on Form 1116. First, add this amount to the reduction in foreign taxes on Part III, line 12, and complete Form 1116 according to the instructions. Add this amount as an additional credit to Form 1116, Part IV, line 32"
I think the only way that this instruction makes sense is if you:
- Do NOT include the US-sourced income in line 1a of Part I on Form 1116 (as you concluded),
- But DO include the foreign tax on that US-sourced income in Part II (so that it can be reduced in line 12).
What do you find on your software?
(The worksheet can be found here: https://www.irs.gov/publications/p514#e ... 1000297436)
Are you also completing the worksheet ("Additional Foreign Tax Credit on U.S. Income") form IRS Publication 514? (https://www.irs.gov/publications/p514)
Some questions for you:
- What tax software are you using?
- Are you completing the worksheet in Publication 514?
- Did you include foreign taxes on your items 4 and 5 (US-sourced dividends and interest) in Part II of Form 1116?
The instructions for Form 1116 point to Pub 514, and the instructions in Pub 514 indicate that one should complete the worksheet to compute the additional credit from re-sourcing the US-sourced income.
The worksheet walks you through computing the credit, and tells you how to adjust the values in Form 1116:
>"This amount may be claimed as a foreign tax credit on Form 1116. First, add this amount to the reduction in foreign taxes on Part III, line 12, and complete Form 1116 according to the instructions. Add this amount as an additional credit to Form 1116, Part IV, line 32"
I think the only way that this instruction makes sense is if you:
- Do NOT include the US-sourced income in line 1a of Part I on Form 1116 (as you concluded),
- But DO include the foreign tax on that US-sourced income in Part II (so that it can be reduced in line 12).
What do you find on your software?
(The worksheet can be found here: https://www.irs.gov/publications/p514#e ... 1000297436)
Re: Form 1116 - Passive Income questions
1-I'm working with a cross-border accountant and I started using taxact.com and Turbotax in parallel as some of the numbers the accountant has entered aren't making a lot of sense to me. Not sure who/what I'll end up filing with.
2-Didn't know about the worksheet, didn't use it. The software(s) appears to be filling in Form 1116 with the expected values. Do you have taxes withheld at source for US-sourced dividend/interest? I didn't, so maybe that makes it simpler.
3-No, as I'm not claiming FTC on the US return for US-sourced dividends and interest. As far as I know US-sourced dividends are taxed in the US and you claim foreign tax credits for whatever you paid to the IRS on the canadian tax return (gets more complicated if your tax rate is above 15% but wont get into that). AFAIK US-sourced interest can be re-sourced to Canada and you can then claim FTC for it. In my case though, the interest is from US-savings bonds and I've read that you cannot re-source that, not sure how true/reliable that info is but I tried contacting the CRA and their answer was that I can claim foreign tax credit for whatever I paid to the IRS on the interest so I'll just do that.
2-Didn't know about the worksheet, didn't use it. The software(s) appears to be filling in Form 1116 with the expected values. Do you have taxes withheld at source for US-sourced dividend/interest? I didn't, so maybe that makes it simpler.
3-No, as I'm not claiming FTC on the US return for US-sourced dividends and interest. As far as I know US-sourced dividends are taxed in the US and you claim foreign tax credits for whatever you paid to the IRS on the canadian tax return (gets more complicated if your tax rate is above 15% but wont get into that). AFAIK US-sourced interest can be re-sourced to Canada and you can then claim FTC for it. In my case though, the interest is from US-savings bonds and I've read that you cannot re-source that, not sure how true/reliable that info is but I tried contacting the CRA and their answer was that I can claim foreign tax credit for whatever I paid to the IRS on the interest so I'll just do that.