I am an American resident in Germany. I receive an IRA distribution , which is taxed by Germany. Can I take a tx credit / deduction for these Gm. taxes?

Forum|Forum|5 years ago
February 9, 2021
1 reply
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turbotax seems to hinge on "foreign income", which this isn't, but Germany taxes it anyway. The way I read the tax treaty it should be taxed by the Germans and refunded in some amount by the Americans (so as not to be double taxed on the same thing).

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ReneeM7122

You are correct. There is a tax treaty between the US and Germany, and you can take the Foreign Tax Credit to offsest the tax that you paid to Germany on your IRA. That's done on Form 1116.

Here's how to get to Form 1116 for 2020:

Make sure you've entered all your foreign income.
From within your return, search for foreign tax credit and select the Jump to link in the search results.
Answer Yes to Did you pay foreign taxes in 2020 or have credits to use from a prior year?
Follow the instructions to get the credit or deduction.

There's a deduction available as well as well as a credit but in most cases, taking the credit works out better. We'll help you decide which one's best for you when you go through this section.

If you choose to take the credit (most people do), we'll attach Form 1116, Foreign Tax Credit if your situation requires it.

rlp6Author

Thank you very much!

I was getting hung up on the phrase "foreign income" (because it's US funds taken from a US account) but if I'm understanding correctly I think what I need to do is check "income re-sourced by treaty".

I'm still working my way through but this has been a big help. The relevant turbotax forms are not super intuitive but with the 1116 in front of me I'm reverse engineering it.

Rich