Form 1116

JoeBlow25 · Post by **JoeBlow25** » Thu Mar 22, 2012 8:56 pm

I was living in the US from 2002 to April of 2011. I held a green card until July of 2011.

I am working on completing my US tax return and I am filling out form 1116 to claim the foreign tax credit. All my canadian income is wages/salary so it falls in the general category. I also have US wages as well for Jan. to Apr.

A few questions:
1. I am using H&R Block Software to complete my US return and for form 1116 it is automatically entering the standard deduction of 11,600 (MFJ) on line 3a. Is this what it should be doing?

2. As a result of it entering this standard deduction, my foreign taxable income (Form 1116 Line 17 - net foreign source income) is reduced and thus my final foreign tax credit is reduced.

3. Where on the 1040 shoud I be reporting my Canadian Income? And do I report my gross Canadian income, or do I report the net foreign taxable income that is shown on form 1116 line 17?

Thanks, I've learned alot reading this forum, you guys are great!

JGCA · Post by **JGCA** » Thu Mar 22, 2012 9:34 pm

You came back to Canada in April 11, gave up GC in July 11, so you need to File a 1040 in US include the CND Wages tehn claim a foreign income exclusuion form 2555 to exempt teh CND salary which you report at the GROSS amount as salary in USD on l040. you will meet teh 330 days physical presence by end of March 2012 so you wait till you hit 330 day and file, you do not need to file 1116 FTC to exclude wages only other types of income. Read pub 54 for more info.

JoeBlow25 · Post by **JoeBlow25** » Thu Mar 22, 2012 10:42 pm

Ok, thanks for the fast response!

I went through the form 2555-EZ, and because the number of days during the qualifying period that are in 2011 is only 260 for me, my maximum earned income exclusion is reduced to the point where I can not exclude all of my Canadian income.

I guess for whatever is not excluded, I can file a form 1116?

Thanks again!

JGCA · Post by **JGCA** » Fri Mar 23, 2012 8:27 am

No, you can exclude the entire period under physical presence rule instaed of Bona fide. Since you are still in Canada you probably will reach teh 330 day rule by March 30th 2012 so you wait until that day tick of box that says I am still here then you have met the requirements and can exclude teh full amount permitted under 2555 rules up to the maximum the form allows.

JoeBlow25 · Post by **JoeBlow25** » Fri Mar 23, 2012 9:03 am

Thanks again JGCA. However, I'm not sure I understand.

In form 2555-EZ on line 14, they ask me to enter the number of days in my qualifying period that fall within 2011 (For me, my qualifying period begins April 17, 2011 and goes to Mar. 30, 2012).

So because I came back to Canada on April 17, the number of days during 2011 that are part of my qualifying period (April 17, 2011 to Mar 30, 2012) is 259. The form then prorates the maximum earned income exclusion by taking the number of days (259/365) * 92,900. 92,900 is the maximum Earned income exclusion for 2011. And this gives me somewhere around 65,921 as the prorated maximum foreign earned income exclusion (lines 15 and 16).

So what I am saying is that my Canadian income from April 17 to Dec. 31, 2011 is higher than 65,921 - the maximum that I can exclude. So I was wondering if this excess amount over 65,921 can then be claimed on a form 1116 for a foreign tax credit?

Please let me know if this is correct, I'm not sure I see a way to complete the form 2555-EZ to allow me to take the full 92,900 exclusion.

Thanks again.

nelsona · Post by **nelsona** » Fri Mar 23, 2012 9:39 am

you are correct joe, your 2011 exclusion limit is based on the days you were i ncanada. What JG was saying is that even to make this claim, you need to first meet PPT, which occurs sometime soon.

Note that because you say your WAGES in canada exceed what you calculated as your limit, you will have US tax to pay on your Cdn wages, by the way the IRS tax is calculated.

So, you might want to look at just doing a dual-status return, Report all income until July, and then 1040NR for the remainder of the year.

Try both ways to see which gives you lower US tax.

JoeBlow25 · Post by **JoeBlow25** » Fri Mar 23, 2012 10:40 am

Thanks again for the very fast replies nelson and JG.

Just wanted to be explicit to make sure I don't do anything wrong -- So I can claim the foreign tax credit (form 1116) for any wages over and above my foreign income exclusion limit. Is my understanding correct on this?

I will look into the alternative you proposed as well to file a 1040 NR for part of the year.

Thanks!

nelsona · Post by **nelsona** » Fri Mar 23, 2012 10:56 am

Yes, 1116 can be used on wages above exclusion, but the numbers usually don't end up giving you full credit. That is why my advice to looking into dual-status so that you do not even have toreport post-renunciation income.

JGCA · Post by **JGCA** » Fri Mar 23, 2012 12:22 pm

Yes you first need to qualify for the amount allowed under the 2555 election and as Nelsona said the 1116 claim can be made for the difference but its of little help try the dual status it more complicated but will definitely help you.