36.13 Foreign Tax Credit

de minimis exception applies; see below. You may not claim a foreign tax credit or deduction for taxes paid on income not subject to U.S. tax. If all of your foreign earned income is excluded, none of the foreign taxes paid on such income may be taken as a credit or deduction on your U.S. return. If you exclude only part of your foreign pay, you determine which foreign taxes are attributable to excluded income and thus barred as foreign tax credits by applying the fractional computation provided in the instructions to Form 1116 and IRS Publication 514.

In one tax year, you may not elect to deduct some foreign taxes and claim others as a credit. One method must be applied to all taxes paid or accrued during the tax year. If you are a cash-basis taxpayer, you may claim a credit for accrued foreign taxes, but you must consistently follow this method once elected.

Exemption from limit for de minimis foreign taxes.

If you have $300 or less of creditable foreign taxes, $600 if married filing jointly, you may elect to be exempt from the overall limitation on the credit, provided that your only foreign source income is qualified passive income and all the income and any foreign taxes paid on it were reported to you on a qualified payee statement such as Form 1099-DIV, Form 1099-INT, or Schedule K-1 of Form 1041, 1065, 1065-B, or 1120S. If the election is made, a foreign tax credit may be claimed directly on Line 47 of Form 1040 without filing Form 1116. See the ...

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