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2020 Instructions for Form 1116

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2020 Instructions for Form 1116 Userid: CPM Schema: Leadpct: 100% Pt. size: 9.5 Draft Ok to Print instrx AH XSL/XML Fileid: … ions/I1116/2020/A/XML/Cycle05/source (Init. & Date) _______ Page 1 of 24 12:55 - 15-Dec-2020 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Department of the Treasury 2020 Internal Revenue Service Instructions for Form 1116 Foreign Tax Credit (Individual, Estate, or Trust) Section references are to the Internal Revenue If you are overseas, call See Foreign Taxes Eligible for a Credit Code unless otherwise noted. 267-941-1000 (not toll free). and Foreign Taxes Not Eligible for a Contents Page Credit, later. You are still required to reduce the General Instructions .............1 Write to Internal Revenue • taxes available for credit by any amount Election To Claim the Service, International Accounts, you would have entered on line 12 of Foreign Tax Credit Philadelphia, PA 19255-0725. Without Filing Form 1116 ....1 Form 1116. See the instructions for Purpose of Form ............1 Line 12, later. Credit or Deduction ..........2 General Instructions To make the election, just enter on Foreign Taxes Eligible for a the foreign tax credit line of your tax Credit .................2 Election To Claim the return (for example, Schedule 3 (Form Foreign Taxes Not Eligible Foreign Tax Credit Without 1040), Part I, line 1) the smaller of (a) for a Credit ..............2 your total foreign tax, or (b) your regular Foreign Currency Filing Form 1116 Conversion .............3 tax (for example, the total of Form 1040 You may be able to claim the foreign tax or 1040-SR, line 16, and Schedule 2 Foreign Tax credit without filing Form 1116. By Redeterminations .........3 (Form 1040), Part I, line 2). making this election, the foreign tax Income From Sources Outside the United States ....3 credit limitation (lines 15 through 21 of Purpose of Form Categories of Income .........4 the form) won't apply to you. This election is available only if you meet all Who should file. File Form 1116 to Special Rules ..............5 of the following conditions. claim the foreign tax credit if the Foreign Qualified Dividends election, earlier, doesn't apply and: and Capital Gains All of your foreign source gross (Losses) ...............7 • • You are an individual, estate, or trust; income was “passive category income” Specific Instructions ............ 15 and (which includes most interest and Part I—Taxable Income or • You paid or accrued certain foreign Loss From Sources dividends). See c. Passive Category taxes to a foreign country or U.S. Outside the United States ... 15 Income, later. However, for this possession. purpose, passive income also includes Part II—Foreign Taxes Paid See Foreign Taxes Eligible for a (a) income subject to the special rule for or Accrued ............. 17 Credit, later, to determine if the taxes High-taxed income described later, and Part III—Figuring the Credit .... 17 you paid or accrued qualify for the (b) certain export financing interest. Part IV—Summary of credit. Credits From Separate • All the income and any foreign taxes Parts III ............... 23 paid on it were reported to you on a Don't use Form 1116 to figure a qualified payee statement. Qualified credit for taxes paid to the U.S. Virgin Future Developments payee statements include Form Islands. Instead, use Form 8689, 1099-DIV, Form 1099-INT, Allocation of Individual Income Tax to For the latest information about the U.S. Virgin Islands. developments related to Form 1116 and Schedule K-1 (Form 1041), its instructions, such as legislation Schedule K-1 (Form 1065), Nonresident aliens. If you are a enacted after they were published, go to Schedule K-1 (Form 1120-S), or similar nonresident alien, you generally can't IRS.gov/Form1116. substitute statements. take the credit. However, you may be • Your total creditable foreign taxes able to take the credit if: More Information aren't more than $300 ($600 if married • You were a resident of Puerto Rico filing a joint return). during your entire tax year, or For more information about, or • You pay or accrue tax to a foreign assistance with, figuring the foreign tax This election isn't available to estates country or U.S. possession on income credit, the following IRS resources are or trusts. from foreign sources that is effectively available. If you make this election, the connected with a trade or business in Publications. See Pub. 514, Foreign following rules apply. the United States. But if you must pay Tax Credit for Individuals. The following • You can't carry over to or from any tax to a foreign country or U.S. publications may also be helpful. other year any foreign taxes paid or possession on income from U.S. • Pub. 54, Tax Guide for U.S. Citizens accrued in a tax year to which the sources only because you are a citizen and Resident Aliens Abroad. election applies (but carryovers to and or a resident of that country or U.S. • Pub. 519, U.S. Tax Guide for Aliens. from other years are unaffected). See possession, don't use that tax in figuring • Pub. 570, Tax Guide for Individuals the instructions for Line 10, later. the amount of your credit. With Income From U.S. Possessions. • You are still required to take into See section 906 for more information • Pub. 575, Pension and Annuity account the general rules for on the foreign tax credit allowed to a Income. determining whether a tax is creditable. nonresident alien individual. Dec 03, 2020 Cat. No. 11441F Page 2 of 24 Fileid: … ions/I1116/2020/A/XML/Cycle05/source 12:55 - 15-Dec-2020 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Credit or Deduction accrued in lieu of a foreign or countries whose governments aren't Instead of claiming a credit for eligible possession income, war profits, or recognized by the United States and foreign taxes, you can choose to deduct excess profits tax that is otherwise aren't otherwise eligible to purchase foreign income taxes. Form 1040 or generally imposed. For purposes of the defense articles or services under the 1040-SR filers choosing to do so would credit, U.S. possessions include Puerto Arms Export Control Act. Pub. 514 deduct foreign income taxes on Rico and American Samoa. contains a list of these countries. Schedule A (Form 1040), Itemized U.S. citizens living in certain treaty 3. Foreign taxes withheld on a Deductions. Generally, if you take the countries may be able to take an dividend from a corporation, if you credit for any eligible foreign taxes, you additional foreign tax credit for foreign haven't held the stock for at least 16 can't take any part of that year's foreign tax imposed on certain items of income days within the 31-day period that taxes as a deduction. However, even if from the United States. See Tax begins 15 days before the ex-dividend you take the credit for eligible foreign Treaties in Pub. 514 for details. If this date. This required holding period is taxes for the year, you can take a applies to you, use the worksheet near greater for preferred-stock dividends deduction for the following. the back of Pub. 514 to help you figure attributable to periods totaling more • Foreign taxes not allowed as a credit this additional credit. than 366 days. See section 901(k)(3) or because of boycott provisions. Pub. 514. • Taxes paid to certain foreign If you make the election under 4. Foreign taxes withheld on a countries for which a credit has been section 962 to be taxed at corporate dividend to the extent that you have to denied, as described in item 2 under rates on the amount you must include in make related payments on positions in Foreign Taxes Not Eligible for a Credit, gross income under sections 951(a) and substantially similar or related property. later. 951A(a) from your controlled foreign Example. You receive a dividend • Taxes on income or gain that aren't corporations, you can claim the credit subject to foreign withholding tax. You creditable because you don't meet the based on your share of foreign taxes are obligated to pay someone else an holding period requirement, as paid or accrued by the controlled foreign amount equal to all these dividends you described in item 3 or 5 under Foreign corporation. If you make this election, receive. You can't claim a foreign tax Taxes Not Eligible for a Credit, later. you must claim the credit by filing Form credit for the withholding tax on these • Taxes on income or gain that aren't 1118. You must also still file Form 1116 dividends. creditable because you have to make to claim the credit for other foreign taxes related payments, as described in item you paid or accrued. For more 5. Foreign taxes withheld on income 4 or 6 under Foreign Taxes Not Eligible information on how to complete your or gain (other than dividends) from for a Credit, later. Form 1116 and Form 1118 when property if you haven't held the property • Certain taxes paid or accrued to a making this election, see sections 960 for at least 16 days within the 31-day foreign country in connection with the and 962 and Pub. 514. period that begins 15 days before the purchase or sale of oil or gas extracted date on which the right to receive the in that country, as described in item 8 Foreign Taxes Not Eligible payment arises.
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