Election to claim the foreign tax credit without filing Form 1116
Individuals may claim the foreign tax credit by entering the amount directly on the Foreign Tax Credit line of the Form 1040, if the following conditions are met.
- All foreign source gross income is passive income. For purposes of the foreign tax credit, passive income includes interest, dividends, royalties, rents, and annuities. Capital gains not related to the active content of a trade or business are also generally passive income.
- All the income and any foreign taxes paid on the income were reported to the taxpayer on a qualified payee statement such as Form 1099-DIV, Form 1099-INT, Schedules K-1 (from Forms 1041, 1065, and 1120-S), or similar substitute statements.
- The total creditable foreign taxes paid are not more than $300 ($600 for Married Filing Jointly).
The election is not available to estates or trusts. Unused credit cannot be carried over if the election is made. Credit can be claimed for tax paid to a foreign country on income that is also taxed by the United States. Credit can be claimed for income tax, war profits tax, excess profits tax, and taxes in lieu of income tax. Taxes paid to a foreign country, a political subdivision of a foreign country, and a U.S. possession qualify. The credit is lesser of foreign tax paid or U.S. tax allocated to foreign source income. U.S. tax is allocated to foreign income by dividing foreign income (after deductions) by income from all sources and multiplying U.S. tax by the result.
Election to deduct foreign taxes
Taxpayers can choose to deduct foreign taxes instead of taking a credit. Individuals claim the deduction on Schedule A, Form 1040. If a deduction is claimed no foreign tax can be claimed as a credit. If a credit is claimed, foreign taxes that do not qualify for the credit can be deducted.
Instructions for entering Foreign Tax Credit in the tax program
From the Main Menu of the Tax Return (Form 1040) select:
- Credits Menu
- Foreign Tax Credit (1116)
NOTE: This is a guide on entering Foreign Tax Credit into the TaxSlayer Pro program. This is not intended as tax advice.