That pesky form 1116 - gross foreign income?

Pablo · Post by **Pablo** » Wed Mar 05, 2014 3:56 pm

Canadian citizen, resident in the U.S. In 2013 I sold a Canadian stock through my American brokerage account and have reportable capital gains. I'll report them in the regular way.

However, since I also have qualified foreign dividends (taxed at source 15%) tax-credit form 1116 asks for both "foreign gross income" (taxed at source or not) and "gross income from all sources".....Are these capital gains part of my gross foreign income since the corporation is resident in Canada? All the information I can gather is contradictory, and the IRS is vague (as usual).

By the way, I've practice-filled the form twice. And the results - the larger tax credit - happens when I leave out these gains from my foreign (Canadian) gross income, and only adjust my Canadian gross income by not including my Canadian qualified dividends (as required).....That is, treat the capital gains as U.S. source income.

Thanks for any help.

nelsona · Post by **nelsona** » Wed Mar 05, 2014 4:07 pm

The term "Gross Income" for 1116 purposes means the foreign income that made up your AGI, line 37 of 1040. It has nothing to do with what you report or not in Canada.

Does that help?

rafa02 · Post by **rafa02** » Wed Mar 05, 2014 5:22 pm

I had several stock sales in 2013 and one was a small loss ($300) and the software I am using (TaxACT), has adjusted the gross income on the 1116 and ignored the loss. So the gross income on 1116 is $300 more than line 37 on the 1040.

nelsona · Post by **nelsona** » Wed Mar 05, 2014 5:38 pm

So then you need to put the $300 back in 1116 at line 5 "losses from foreign sources"

rafa02 · Post by **rafa02** » Wed Mar 05, 2014 7:18 pm

Thanks nelsona,. The tax software had added the $300 to the gross income from all sources, but the foreign source income did not reflect the additional $300, so I am thinking I need to manually increase the foreign source income by $300, unless the amount at line 5-1116 should be entered as a negative.

nelsona · Post by **nelsona** » Thu Mar 06, 2014 6:45 am

I would increase the foreign gross income.

Is this the only source of Cdn tax tha tyou have? Idf so, you can bypass 1116 and simply include the tax reported on your 1099.

rafa02 · Post by **rafa02** » Thu Mar 06, 2014 1:54 pm

I do have other Cdn income, so I do need to file 1116.

As per my previous post, the tax software increased the amount of my gross income from all sources and left my foreign source income at the reduced amount, which then lowered the amount of FTC I could use. Then if I report the $300 loss at line 5-1116, it reduces my FTC again.

I will increase the amount of foreign source income by the $300 and I think that gives me the correct amount of FTC.

Thanks for your help.