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The amount of the foreign tax a taxpayer can use as a credit to offset his or her
U.S. tax paid X Foreign Source Income / Total Income
As an example, if your income was $200,000 and it included $1,000 of foreign source income from a mutual fund that withheld $200 of foreign tax. The your maximum credit would be (if your
$24,000 X $1,000 / $200,000 = $120
The foreign tax credit may not exceed the portion of
An individual with (1) no more than $300 ($600 for married filing jointly) of creditable foreign taxes, and (2) only qualified passive foreign income, may elect to be exempt from the foreign tax credit limitation. Qualified passive income generally includes investment income such as dividends, interest, rents, royalties, and sale or exchange gains. The election is made by simply claiming the foreign tax credit on the appropriate line of Form 1040 instead of filing Form 1116. Any unused credit cannot be carried back or forward if this election is made.
Making the election should be considered when:
Please call us if you have any questions about this election.