Userid: CPM Schema: tipx Leadpct: 100% Pt. size: 8 Draft Ok to Print AH XSL/XML Fileid: … tions/P514/2020/A/XML/Cycle04/source (Init. & Date) _______ Page 1 of 32 6:24 - 25-Feb-2021 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Publication 514 Cat. No. 15018A Contents Reminders ................... 1 Department of the Foreign Tax Introduction .................. 1 Treasury Choosing To Take Credit or Internal Revenue Credit for Deduction ................ 2 Service Individuals Why Choose the Credit? .......... 3 Who Can Take the Credit? ......... 5 What Foreign Taxes Qualify for the For use in preparing Credit? .................. 6 Foreign Taxes for Which You 2020 Returns Cannot Take a Credit ......... 7 How To Figure the Credit ......... 11 Carryback and Carryover ......... 23 How To Claim the Credit ......... 26 How To Get Tax Help ........... 28 Index ..................... 31 Reminders Future developments. For the latest informa- tion about developments related to Pub. 514, such as legislation enacted after it was pub- lished, go to IRS.gov/Pub514. Alternative minimum tax. In addition to your regular income tax, you may be liable for the al- ternative minimum tax. A foreign tax credit may be allowed in figuring this tax. See the Instruc- tions for Form 6251 for a discussion of the alter- native minimum tax foreign tax credit. Change of address. If your address changes from the address shown on your last return, use Form 8822, Change of Address, to notify the IRS. Photographs of missing children. The IRS is a proud partner with the National Center for Missing & Exploited Children® (NCMEC). Pho- tographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 800-THE-LOST (800-843-5678) if you recognize a child. Introduction If you paid or accrued foreign taxes to a foreign country on foreign source income and are sub- ject to U.S. tax on the same income, you may be able to take either a credit or an itemized de- duction for those taxes. Taken as a deduction, foreign income taxes reduce your U.S. taxable income. Taken as a credit, foreign income taxes Get forms and other information faster and easier at: reduce your U.S. tax liability. • IRS.gov (English) • IRS.gov/Korean (한국어) In most cases, it is to your advantage to take • IRS.gov/Spanish (Español) • IRS.gov/Russian (Pусский) foreign income taxes as a tax credit. The major • IRS.gov/Chinese (中文) • IRS.gov/Vietnamese (Tiếng Việt) scope of this publication is the foreign tax credit. Feb 25, 2021 Page 2 of 32 Fileid: … tions/P514/2020/A/XML/Cycle04/source 6:24 - 25-Feb-2021 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. This publication discusses: • You paid or accrued taxes on income or • How to choose to take the credit or the de- gain in connection with a covered asset duction, Choosing To Take acquisition. Covered asset acquisitions in- • Who can take the credit, Credit or Deduction clude certain acquisitions that result in a • What foreign taxes qualify for the credit, stepped-up basis for U.S. tax purposes. • How to figure the credit, and For more information, see Internal Reve- You can choose whether to take the amount of • How to carry over unused foreign taxes to nue Code section 901(m) and the tempo- any qualified foreign taxes paid or accrued dur- other tax years. rary regulations under that section, includ- ing the year as a foreign tax credit or as an ing Treasury Decision 9800 in Internal Unless you qualify for exemption from the itemized deduction. You can change your Revenue Bulletin 2016-52 at IRS.gov/irb/ foreign tax credit limit, you claim the credit by fil- choice for each year's taxes. ing Form 1116 with your U.S. income tax return. 2016-52_IRB#TD-9800. To choose the foreign tax credit, in most ca- For more information on these items, see Comments and suggestions. We welcome ses, you must complete Form 1116 and attach Taxes for Which You Can Only Take an Item- your comments about this publication and sug- it to your U.S. tax return. However, you may ized Deduction, later, under Foreign Taxes for gestions for future editions. qualify for the exception that allows you to claim Which You Cannot Take a Credit. You can send us comments through the foreign tax credit without using Form 1116. IRS.gov/FormComments. Or, you can write to See How To Figure the Credit, later. To claim Foreign taxes that are not income taxes. In the Internal Revenue Service, Tax Forms and the taxes as an itemized deduction, use Sched- most cases, only foreign income taxes qualify Publications, 1111 Constitution Ave. NW, ule A (Form 1040). for the foreign tax credit. Other taxes, such as IR-6526, Washington, DC 20224. Figure your tax both ways—claiming foreign real and personal property taxes, do not Although we can’t respond individually to TIP the credit and claiming the deduction. qualify. But you may be able to deduct these each comment received, we do appreciate your Then fill out your return the way that other taxes even if you claim the foreign tax feedback and will consider your comments and benefits you more. See Why Choose the Credit, credit for foreign income taxes. suggestions as we revise our tax forms, instruc- later. In most cases, you can deduct these other tions, and publications. Do not send tax ques- taxes only if they are expenses incurred in a tions, tax returns, or payments to the above ad- trade or business or in the production of in- dress. Choice Applies to All come. However, you can deduct foreign real Qualified Foreign Taxes property taxes that are not trade or business ex- Getting answers to your tax questions. penses as an itemized deduction on Sched- If you have a tax question not answered by this As a general rule, you must choose to take ei- ule A (Form 1040). publication or the How To Get Tax Help section ther a credit or a deduction for all qualified for- at the end of this publication, go to the IRS In- eign taxes. Carrybacks and carryovers. There is a limit teractive Tax Assistant page at IRS.gov/ on the credit you can claim in a tax year. If your Help/ITA where you can find topics by using the If you choose to take a credit for qualified qualified foreign taxes exceed the credit limit, search feature or viewing the categories listed. foreign taxes, you must take the credit for all of you may be able to carry over or carry back the them. You cannot deduct any of them. Con- Getting tax forms, instructions, and pub- excess to another tax year. If you deduct quali- versely, if you choose to deduct qualified for- lications. Visit IRS.gov/Forms to download fied foreign taxes in a tax year, you cannot use eign taxes, you must deduct all of them. You current and prior-year forms, instructions, and a carryback or carryover in that year. That is be- cannot take a credit for any of them. publications. cause you cannot take both a deduction and a credit for qualified foreign taxes in the same tax See What Foreign Taxes Qualify for the Ordering tax forms, instructions, and year. Credit, later, for the meaning of qualified foreign publications. Go to IRS.gov/OrderForms to taxes. For more information on the limit, see How order current forms, instructions, and publica- To Figure the Credit, later. For more information tions; call 800-829-3676 to order prior-year There are exceptions to this general rule, on carrybacks and carryovers, see Carryback forms and instructions. The IRS will process which are described next. and Carryover, later. your order for forms and publications as soon as possible. Do not resubmit requests you’ve Exceptions for foreign taxes not allowed as already sent us. You can get forms and publica- a credit. Even if you claim a credit for other for- Making or tions faster online. eign taxes, you can deduct any foreign tax that Changing Your Choice is not allowed as a credit if you did any of the Useful Items following. You can make or change your choice to claim a You may want to see: • You paid the tax to a country for which a deduction or credit at any time during the period credit is not allowed because it provides within 10 years from the regular due date for fil- support for acts of international terrorism, ing the return (without regard to any extension Publication or because the United States does not of time to file) for the tax year in which the taxes 54 54 Tax Guide for U.S. Citizens and have or does not conduct diplomatic rela- were actually paid or accrued. You make or Resident Aliens Abroad tions with it or recognize its government change your choice on your tax return (or on an and that government is not otherwise eligi- amended return) for the year your choice is to 519 519 U.S. Tax Guide for Aliens ble to purchase defense articles or serv- be effective. 570 570 Tax Guide for Individuals With ices under the Arms Export Control Act. Income From U.S. Possessions • You paid withholding tax on dividends from Note that while the limitations period for re- foreign corporations whose stock you did fund claims relating to a foreign tax credit gen- Form (and Instructions) not hold for the required period of time.