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Foreign Tax Credit - Income re-sourced by treaty - How do I enter Schedule B Interest and Dividends

Forum|Forum|2 years ago
October 6, 2023
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Hi -

I've been using TurboTax for years. I'm a US Citizen, Spanish tax resident.

My income is entirely from US sources. The income consists of an IRA distribution (1099-R), US bank interest (1099-INT) and US investment company dividends (1099-DIV).

In Spain, I report the IRA distribution, US interest and US dividends and pay the associated tax.

In the US, I also report these items in the appropriate income sections of TT.

For the US, I've also completed the foreign tax credit in previous years in two categories:

Passive Income (traditionally Form 1116 - Copy 1)
Income Re-sourced by Treaty (traditionally Form 1116 - Copy 2)

Normally, the "Passive income" copy notes the portion of dividends that are of foreign source and the tax credit is given. This is determined by answering TT questions about the portion of income that are foreign sourced.

In the "Income Re-sourced by Treaty" section, I manually enter the IRA distribution under Other Gross Income. As expected, this value is added to the FTC tax worksheet under Gross Income.

My question is:

During the TT step-by-step procedure for "Income Re-sourced by Treaty" it specifically states that any income already reported on 1099-INT, 1099-DIV, etc. should NOT be reported again. How are these items included on Form 1116? In previous years, I see my US interest and dividends on Form 1116, Part 1, Line C (Interest and Dividends from Schedule B). I don't recall manually entering a value directly in the Form but perhaps I did. Is there some other place to link Sched B Interest and Dividends to the Form 1116 or is it a manual entry?

Thanks!

Best answer by pk12_2

@Robbie V , it is a bit messy, but I just tried the scenario that reflects your case --- Interest ( domestic ) , Dividend income ( including foreign taxes paid to country 1 ), and 1099-R for both taxpayer and spouse ( taxed by both USA and Spain ( country #2 ).

If you don't want to hand enter zll the gory details for the " resourced by treaty ", the way I could achieve this is to --- at the end of taking care of dividend income foreign tax ( form 1116 work sheet #1 ), go to forms mode and add a new form 1116 comp. worksheet -- from the drop downlist of all the forms available, then while this second worksheet is selected , click step-by-step. Form here on you can enter all the needed information -- because the second worksheet shows up on your list of 1116 forms , select edit and follow the screen prompts.

Hope this helps

Is there more I can do for you /

pk

A

Anonymous_

Employee

@pk12_2 ?

P

pk12_2Answer

Employee

@Robbie V , it is a bit messy, but I just tried the scenario that reflects your case --- Interest ( domestic ) , Dividend income ( including foreign taxes paid to country 1 ), and 1099-R for both taxpayer and spouse ( taxed by both USA and Spain ( country #2 ).

If you don't want to hand enter zll the gory details for the " resourced by treaty ", the way I could achieve this is to --- at the end of taking care of dividend income foreign tax ( form 1116 work sheet #1 ), go to forms mode and add a new form 1116 comp. worksheet -- from the drop downlist of all the forms available, then while this second worksheet is selected , click step-by-step. Form here on you can enter all the needed information -- because the second worksheet shows up on your list of 1116 forms , select edit and follow the screen prompts.

Hope this helps

Is there more I can do for you /

pk

R

Robbie VAuthor

Thanks @pk12_2 and @Anonymous_

I appreciate the prompt reply (and I apologize for my delayed response).

I'd like to clarify the steps that you offered before trying your solution. And, I'll make a copy of my existing tax file before attempting these steps:

1) Delete the existing Form 1116, Income Re-sourced by treaty (currently Copy 2)

QUESTION: Do you recommend that I also delete the Form 1116, FTC Passive Income (currently Copy 1) and re-enter it? Or is it OK to leave it?

2) Switch to Forms mode and use Open Form to add a new Form 1116

3) Mark the Form as Income Re-Sourced by treaty and then switch to Step-by-Step

4) Use the step-by-step questions to include my 1099 income that is taxed by Spain.

If it's really that simple then it's not messy at all! Again, thanks for the help!

Rob

P

pk12_2

Employee

@Robbie V I did not delete the 1116 worksheet that was working ( Passive income ) i.e. form 1116 worksheet #1. All I wanted was ad a new form 1116 deleting the original" in-active" form 1116 worksheet.

Good Luck

pk