Hi,
I closed my RRSP and paid the %25 tax to Canada, so I am filing form 1116 in the general category to use the foreign tax credit.
I also had a capital loss in Canada in the passive category, related to a TFSA. I did not intend to file a 1116 for this category since I did not pay any taxes and I cannot claim a credit.
From pub. 514 it seems to me that I should consider the losses in all categories (for my case passive capital loss) in line 16 and subtract it from the RRSP income (general income) before calculating the tax credit. However, the instructions of Form 1116 indicate that this line includes the losses in all 1116 forms, but I am not filing a 1116 for the loss in the passive category, so I should not consider it in line 16.
My questions:
1- Do I have to file form 1116 for a category in which I did not have any income, just capital loss, and for which I did not pay any tax?
2- In my case, do I consider the loss from the passive category in line 16 of Form 1116 for the general income category?
Thanks.
Form 1116- gain and loss in different categorie
Moderator: Mark T Serbinski CA CPA
Hi Pauline,
Yes - I think it would be best for you to file an 1116 for both passive and general category types. You are correct about line 16 - I believe this is called "loss re-capturing". On your passive form 1116, you would put $0 on line 1a. Then put your loss on line 5. A negative number will appear on line 7, then use line 16 (a positive number) to cancel out the negative number, so that line 17 is zero. Then, on your general category form 1116, put the same value on line 16 - except negative, that you put on your passive cat. line 16.
On a future return, when you might have positive passive income, you can then do the opposite as above and recapture your loss. This way you don't miss out on passive foreign tax credits.
One thing to be careful of, if you are required to do the line 18 adjustment, and your loss was a long term loss, the quantity on line 5 (your loss) will also have to be adjusted.
Cheers,
Yes - I think it would be best for you to file an 1116 for both passive and general category types. You are correct about line 16 - I believe this is called "loss re-capturing". On your passive form 1116, you would put $0 on line 1a. Then put your loss on line 5. A negative number will appear on line 7, then use line 16 (a positive number) to cancel out the negative number, so that line 17 is zero. Then, on your general category form 1116, put the same value on line 16 - except negative, that you put on your passive cat. line 16.
On a future return, when you might have positive passive income, you can then do the opposite as above and recapture your loss. This way you don't miss out on passive foreign tax credits.
One thing to be careful of, if you are required to do the line 18 adjustment, and your loss was a long term loss, the quantity on line 5 (your loss) will also have to be adjusted.
Cheers,
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MGeorge is neither an accounting nor taxation professional.
MGeorge is neither an accounting nor taxation professional.
Pauline, how long have you been in US? If you just moved, You should not have much US taxable RRSP income, and there may be no point in taking a credit for RRSP tax, rather use it as a deduction.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
Thanks MGeorge,
That is what I think I have to do too. Unfortunately I don't get any foreign tax credit with this method. The only problem now is that TurboTax does not allow me to fill a 1116 form without income and tax, and Taxact gives me a red alert and shows that I have an error since I do not have any income for this form. I will probably have to fill this form manually.
Thanks Nelsona,
I have read your previous posts on this subject and they did help me. For my case, using the foreign taxes as a deduction doesn't change anything since the itemized deduction does not reach the standard deduction.
That is what I think I have to do too. Unfortunately I don't get any foreign tax credit with this method. The only problem now is that TurboTax does not allow me to fill a 1116 form without income and tax, and Taxact gives me a red alert and shows that I have an error since I do not have any income for this form. I will probably have to fill this form manually.
Thanks Nelsona,
I have read your previous posts on this subject and they did help me. For my case, using the foreign taxes as a deduction doesn't change anything since the itemized deduction does not reach the standard deduction.