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Publication 514

How To Claim
the Credit(p25)

You must file Form 1116 to claim the foreign tax credit unless you meet one of the following exceptions.


If you meet the requirements discussed under Exemption from foreign tax credit limit, earlier, and choose to be exempt from the foreign tax credit limit, do not file Form 1116. Instead, enter your foreign taxes directly on Form 1040, line 48, or Form 1040NR, line 46.
If you are a shareholder of a controlled foreign corporation and chose to be taxed at corporate rates on the amount you must include in gross income from that corporation, use Form 1118 to claim the credit. See Controlled foreign corporation shareholder under You Must Have Paid or Accrued the Tax, earlier.

Form 1116(p25)

You must file a Form 1116 with your U.S. income tax return, Form 1040 or Form 1040NR. You must file a separate Form 1116 for each of the following categories of income for which you claim a foreign tax credit.
A Form 1116 consists of four parts.
  1. Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above). Enter the gross amounts of your foreign or possession source income in the separate limit category for which you are completing the form. Do not include income you excluded on Form 2555 or Form 2555-EZ. From these, subtract the deductions that are definitely related to the separate limit income, and a ratable share of the deductions not definitely related to that income. If, in a separate limit category, you received income from more than one foreign country or U.S. possession, complete a separate column for each. You do not need to report income passed through from a regulated investment company (RIC) on a country by country basis. Aggregate all income passed through from a RIC in a single column in Part I. Enter "RIC" on line g of Part I.
  2. Part II—Foreign Taxes Paid or Accrued. This part shows the foreign taxes you paid or accrued on the income in the separate limit category in foreign currency and U.S. dollars. If you paid (or accrued) foreign tax to more than one foreign country or U.S. possession, complete a separate line for each. If you receive income passed through from a RIC, aggregate all foreign taxes paid or accrued on that income on a single line in Part II.
  3. Part III—Figuring the Credit. You use this part to figure the foreign tax credit that is allowable.
  4. Part IV—Summary of Credits From Separate Parts III. You use this part on one Form 1116 (the one with the largest amount entered on line 22) to summarize the foreign tax credits figured on separate Forms 1116.

Records To Keep(p25)

Where Refund
You should keep the following records in case you are later asked to verify the taxes shown on your Form 1116, Form 1040, or Form 1040NR. You do not have to attach these records to your Form 1040 or Form 1040NR.
  • A receipt for each foreign tax payment.
  • The foreign tax return if you claim a credit for taxes accrued.
  • Any payee statement (such as Form 1099-DIV or Form 1099-INT) showing foreign taxes reported to you.
The receipt or return you keep as proof should be either the original, a duplicate original, or a duly certified or authenticated copy. If the receipt or return is in a foreign language, you also should have a certified translation of it. Revenue Ruling 67-308 in Cumulative Bulletin 1967-2 discusses in detail the requirements of the certified translation. Issues of the Cumulative Bulletin are available in most IRS offices and you are welcome to read them there.


PencilWorksheet. Additional Foreign Tax Credit on U.S. income*
I. U.S. tax on U.S. source incomeCOL. ACOL. B
 (U.S. source rules)
  4.Capital gain
  5.a.Gross earned income 
   b.Allocable employee business expenses 
   c.Net compensation. Subtract line 5b from line 5a 
  6.a.Gross rent, real property 
   b.Direct expenses 
   c.Net rent. Subtract line 6b from line 6a 
  8.Add lines 1-5a, 6a and 7 in column A and lines 1-4, 5c, 6c and 7 in column B
  9.Enter tax from Form 1040 (see instructions)
  10.Enter adjusted gross income (AGI) from line 37, Form 1040
  11.Divide line 9 by line 10. Enter the result as a decimal. This is the average tax rate on your AGI.
  12.Multiply line 11 by line 8 (column B). This is your estimated U.S. tax on your U.S. source income.
II. Tax at source allowable under treaty  
 A.Items fully taxable by U.S.  
   b.Multiply line 13a by line 11
 B.Items partly taxable by U.S.
   b.Treaty rate 
   c.Allowable tax at source (Multiply line 14a by line 14b)
   b.Treaty rate 
   c.Allowable tax at source (Multiply line 15a by line 15b)
  16.Total (Add lines 13b, 14c, and 15c)
 C.Identify each item of U.S. source income from Col. A, Step I, on which the U.S. may
not, under treaty, tax residents of the other country who are not U.S. citizens
III. Additional credit  
  17.Residence country tax on U.S. source income before foreign tax credit
  18.Foreign tax credit allowed by residence country for U.S. income tax paid
  19.Maximum credit. Subtract the greater of line 16 or line 18 from line 12.
  20.a.Enter the amount from line 17 
   b.Enter the greater of line 16 or line 18 
   c.Subtract line 20b from line 20a
  21.Additional credit. Enter the smaller of line 19 or line 20c. Add this amount to line 12 of Part III and line 30 of Part IV Form 1116.
* See the discussion on Tax Treaties for information on when you should use this worksheet.
PencilWorksheet Instructions. Additional Foreign Tax Credit on U.S. Income
Note. Complete a separate worksheet for each separate limit income category.
Figure the estimated tax on U.S. source income in the separate limit income category using U.S. rules for determining the source of income.
 Lines 1-7 Enter the gross amount for each type of income in Column A, and the net amount in Column B.
 Line 9 Enter the amounts from Form 1040, lines 44 and 46.
Determine the amount of tax that the United States is allowed to collect at source under the treaty on income in the separate limit income category of residents of the other country who are not U.S. citizens. (In most cases, this amount should be claimed, to the extent allowable, as a foreign tax credit on your foreign tax return.)
 PART A Income in the separate limit income category fully taxable by the United States. In most cases, this includes income from a U.S. trade or business and gains from dispositions of U.S. real property. Identify the type and amount on line 13a.
 PART B Income in the separate limit income category for which treaty limits U.S. tax at source. This may include dividends, interest, royalties, and certain pensions.
 Lines 14-15 Identify each type and amount of income. Use the specified treaty rate. (See Publication 901, U.S. Tax Treaties.)
 PART C Identify the items in the separate limit income category not taxable at source by the United States under the treaty.
Figure the amount of the additional credit for foreign taxes paid or accrued on U.S. source income. The additional credit is limited to the difference between the estimated U.S. tax (Step I) and the greater of the allowable U.S. tax at source (Step II) or the foreign tax credit allowed by the residence country (line 18).
 Line 17 Enter the amount of the residence country tax on your U.S. source income before reduction for foreign tax credits. If possible, use the fraction of the pre-credit residence country tax which U.S. source taxable income bears to total taxable income. Otherwise, report that fraction of the pre-credit foreign tax which gross U.S. income bears to total gross income for foreign tax purposes.
 Line 21 This amount may be claimed as a foreign tax credit on Form 1116. First, add this amount to the reduction in foreign taxes on line 12, Part III, and complete Form 1116 according to the instructions. Add this amount as an additional credit to line 30, Part IV, of Form 1116 as well and report that total on your Form 1040. File this worksheet with your Form 1040 as an attachment to Form 1116.