Question

Foreign Tax Credit

Forum|Forum|6 years ago
March 28, 2020
2 replies
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I´ve been living in the United States since March 1, 2018. I filed my tax return for 2018 and I am now working on the 2019 return.

I earn rental income from property I own in Germany so I continue to file a tax return in Germany as well. Based on the tax treaty between the U.S. and Germany, I can use the taxes paid in Germany as a foreign tax credit in my U.S. tax return.

Here is my question: Due to the complexity, I was not able to file my German 2018 tax return in time to know and include the foreign tax credit in my 2018 U.S. tax return. By now I have filed it and know the exact taxes I had to pay in Germany on my 2018 income. Can I use this tax credit now in my 2019 return? Do I combine the 2018 foreign tax credit with the 2019 foreign tax credit? Can you describe the steps how to do that in TurboTax?

Thanks!

TurboTax Free Edition Online

RobertG

To claim the 2018 Foreign Tax Credit you need to amend your 2018 return.

See IRS Topic No. 856 Foreign Tax Credit.

If you claim it on your 2019 return the amount of the credit will be incorrect because it is based on your 2018 income, both for the credit amount and the carryover, if any.

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A

Anonymous

from form 1116 instructions

Generally, you can take a foreign tax
credit in the tax year you paid or
accrued the foreign taxes, depending
on your method of accounting. If you
report on the cash basis, you can
choose to take the credit for accrued
taxes by checking the “accrued” box in
Part II. But once you choose to do this,
you must credit foreign taxes in the year
they accrue on all future returns

so if you use the cash basis you would combine the taxes paid in 2018 and 2019, but would only have the 2019 net rental income for computing the allowable credit

your only other choice would be to amend 2018 to choose the accrual basis but as stated above you would have yo use that method in all future tears.