taxmap/pubs/p514-000.htm#en_us_publink1000224352taxmap/pubs/p514-000.htm#en_us_publink1000249371Taxes on combined income.
(p1)New rules apply in determining who is considered to pay a foreign income tax when the tax is imposed on the combined income of two or more persons (for example, husband and wife). The new rules apply to foreign taxes paid or accrued in tax years beginning after February 14, 2012. However, you can choose to apply the new rules to foreign taxes paid or accrued in tax years beginning after December 31, 2010, and before February 15, 2012. See
Combined income under
You Must Have Paid or Accrued the Tax later.
taxmap/pubs/p514-000.htm#en_us_publink1000280328Boycotting countries.
(p1) taxmap/pubs/p514-000.htm#en_us_publink1000293954For the latest information about developments related to Pub. 514, such as legislation enacted after it was published, go to
www.irs.gov/pub514.
taxmap/pubs/p514-000.htm#en_us_publink1000224356Alternative minimum tax.
(p1)In addition to your regular income tax, you may be liable for the alternative minimum tax. A foreign tax credit may be allowed in figuring this tax. See the instructions for Form 6251, Alternative Minimum Tax—Individuals, for a discussion of the alternative minimum tax foreign tax credit.
taxmap/pubs/p514-000.htm#en_us_publink1000224357If your address changes from the address shown on your last return, use Form 8822, Change of Address, to notify the Internal Revenue Service.
taxmap/pubs/p514-000.htm#en_us_publink1000224358Photographs of missing children.
(p2)The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs 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 1-800-THE-LOST (1-800-843-5678) if you recognize a
child.
If you paid or accrued foreign taxes to a foreign country on foreign source income and are subject to U.S. tax on the same income, you may be able to take either a credit or an itemized deduction for those taxes. Taken as a deduction, foreign income taxes reduce your U.S. taxable income. Taken as a credit, foreign income taxes reduce your U.S. tax liability.
In most cases, it is to your advantage to take foreign income taxes as a tax credit. The major scope of this publication is the foreign tax
credit.
The publication discusses:
- How to choose to take the credit or the deduction,
- Who can take the credit,
- What foreign taxes qualify for the credit,
- How to figure the credit, and
- How to carry over unused foreign taxes to other tax years.
Unless you qualify for exemption from the foreign tax credit limit, you claim the credit by filing Form 1116 with your U.S. income tax return. Two examples with filled-in Forms 1116 are provided at the end of this
publication.
taxmap/pubs/p514-000.htm#en_us_publink1000294219We welcome your comments about this publication and your suggestions for future
editions.
You can write to us at the following address:
Internal Revenue Service
Individual and Specialty Forms and Publications Branch
SE:W:CAR:MP:T:I
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224
We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your
correspondence.
You can email us at
taxforms@irs.gov. Please put "Publications Comment" on the subject line. You can also send us comments from
www.irs.gov/formspubs/. Select "Comment on Tax Forms and Publications" under "More
Information."
Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax
products.
taxmap/pubs/p514-000.htm#en_us_publink1000294220Visit
www.irs.gov/formspubs/
to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or
write to the address below and receive a response within 10 days after your
request is received.
Internal Revenue Service
1201 N. Mitsubishi Motorway
Bloomington, IL 61705-6613 taxmap/pubs/p514-000.htm#en_us_publink1000294221If you have a tax question, check the information available on IRS.gov or call 1-800-829-1040. We cannot answer tax questions sent to either of the above
addresses.
taxmap/pubs/p514-000.htm#TXMP3aa0f6b7Useful items
You may want to see:
Publication 54 Tax Guide for U.S. Citizens and Resident Aliens Abroad 519 U.S. Tax Guide for Aliens 570 Tax Guide for Individuals With Income From U.S. Possessions Form (and Instructions) 1116:
Foreign Tax Credit See
How To Get Tax Help
near the end of this publication for information about getting these
publications and this form.
taxmap/pubs/p514-000.htm#en_us_publink1000224362You can choose whether to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction. You can change your choice for each year's taxes.
To choose the foreign tax credit, in most cases you must complete Form 1116 and attach it to your U.S. tax return. However, you may qualify for the exception that allows you to claim the foreign tax credit without using Form 1116. See
How To Figure the Credit, later. To choose to claim the taxes as an itemized deduction, use Schedule A (Form 1040), Itemized Deductions.
| Figure your tax both ways—claiming the credit and claiming the deduction. Then fill out your return the way that benefits you more. See
Why Choose the Credit, later. |
taxmap/pubs/p514-000.htm#en_us_publink1000224364As a general rule, you must choose to take either a credit or a deduction for all qualified foreign
taxes.
If you choose to take a credit for qualified foreign taxes, you must take the credit for all of them. You cannot deduct any of them. Conversely, if you choose to deduct qualified foreign taxes, you must deduct all of them. You cannot take a credit for any of
them.
There are exceptions to this general rule, which are described
next.
taxmap/pubs/p514-000.htm#en_us_publink1000224365Even if you claim a credit for other foreign taxes, you can deduct any foreign tax that is not allowed as a credit
if:
- You paid the tax to a country for which a credit is not allowed because it provides support for acts of international terrorism, or because the United States does not have or does not conduct diplomatic relations with it or recognize its
government,
- You paid withholding tax on dividends from foreign corporations whose stock you did not hold for the required period of
time,
- You paid withholding tax on income or gain (other than dividends) from property you did not hold for the required period of
time,
- You paid withholding tax on income or gain to the extent you had to make related payments on positions in substantially similar or related property,
- You participated in or cooperated with an international boycott,
- You paid taxes in connection with the purchase or sale of oil or gas,
or
- You paid or accrued taxes on income or gain in connection with a covered asset acquisition. Covered asset acquisitions include certain acquisitions that result in a stepped-up basis for U.S. tax purposes. For more information, see Internal Revenue Code section 901(m). The IRS intends to issue guidance that will explain this provision in greater
detail.
taxmap/pubs/p514-000.htm#en_us_publink1000224366In most cases, only foreign income taxes qualify for the foreign tax credit. Other taxes, such as foreign real and personal property taxes, do not qualify. But you may be able to deduct these other taxes even if you claim the foreign tax credit for foreign income taxes.
In most cases, you can deduct these other taxes only if they are expenses incurred in a trade or business or in the production of income. However, you can deduct foreign real property taxes that are not trade or business expenses as an itemized deduction on Schedule A (Form 1040).
taxmap/pubs/p514-000.htm#en_us_publink1000224367There is a limit on the credit you can claim in a tax year. If your qualified foreign taxes exceed the credit limit, you may be able to carry over or carry back the excess to another tax year. If you deduct qualified foreign taxes in a tax year, you cannot use a carryback or carryover in that year. That is because you cannot take both a deduction and a credit for qualified foreign taxes in the same tax year.
taxmap/pubs/p514-000.htm#en_us_publink1000224368You can make or change your choice to claim a deduction or credit at any time during the period within 10 years from the regular due date for filing the return (without regard to any extension of time to file) for the tax year in which the taxes were actually paid or accrued. You make or change your choice on your tax return (or on an amended return) for the year your choice is to be effective.
taxmap/pubs/p514-000.htm#en_us_publink1000224369You paid foreign taxes for the last 13 years and chose to deduct them on your U.S. income tax returns. You were timely in both filing your returns and paying your U.S. tax liability. In February 2012, you file an amended return for tax year 2001 choosing to take a credit for your 2001 foreign taxes because you now realize that the credit is more advantageous than the deduction for that year. Because the regular due date of your 2001 return was April 15, 2002, this choice is timely (within 10
years).
Because there is a limit on the credit for your 2001 foreign tax, you have unused 2001 foreign taxes. Ordinarily, you first carry back unused foreign taxes arising in 2001 to, and claim them as a credit in, the 2 preceding tax years. If you are unable to claim all of them in those 2 years, you carry them forward to the 10 years following the year in which they
arose.
Because you originally chose to deduct your foreign taxes and the 10-year period for changing the choice for 1999 and 2000 has passed, you cannot change your choice and carry the unused 2001 foreign taxes back to tax years 1999 and
2000.
Because the 10-year periods for changing the choice have not passed for your 2002 through 2011 income tax returns, you can still choose to claim the credit for those years and carry forward any unused 2001 foreign taxes. However, you must reduce the unused 2001 foreign taxes that you carry forward by the amount that would have been allowed as a carryback if you had timely carried back the foreign tax to tax years 1999 and
2000.
| You cannot take a credit or a deduction for foreign taxes paid on income you exclude under the foreign earned income exclusion or the foreign housing exclusion. See
Foreign Earned Income and Housing Exclusions under Foreign Taxes for Which You Cannot Take a Credit,
later. |