# Forms 1116 and 2555



## solost1992 (Apr 2, 2014)

Can I use both above forms for the same tax year. I always use 2555 for my salary, but want to use form 1116 to offset my French rental income to avoid double taxation. Using form 1116 will not be beneficial for my salary.

If I paid tax to France for my rental income in 2017 for tax year 2016, can I take the credit in 2018 to reduce my US taxes?


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## Bevdeforges (Nov 16, 2007)

No problem using both forms 1116 and 2555 on the same return as long as they refer to different income. (OK, if your salary is greater than the FEIE limit you can use the tax credit on the part of your salary that exceeds the limit - but this gets complicated.)

US taxes are generally on a cash basis, which means that what you paid in calendar year 2017 goes onto your 2017 return (i.e. filed in 2018). It doesn't actually matter all that much what tax year in France you were paying for. It's more a matter of what US tax year you made the payment.
Cheers,
Bev


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## solost1992 (Apr 2, 2014)

Thanks Bev. Now to figure out how to fill out the form.


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## Moulard (Feb 3, 2017)

I am interested in why you say that there is no benefit in using 1116 over the 2555. The ONLY examples I can think of where that would be the case is if foreign taxes on earned income are LOWER that the US equivalent. 

The FEIE is basically a tax credit that always equal the US tax due, and thus in practice just reduces your Adjusted Gross Income for that year, and that year only.

The Foreign Tax Credit is based on the actual amount of foreign tax paid, and you can carryover any additional taxes. This means you can build up a pool of credits that can be used to offset taxes owed in the future.


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## solost1992 (Apr 2, 2014)

Moulard, my French taxes are lower than the US.


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## Bevdeforges (Nov 16, 2007)

solost1992 said:


> Moulard, my French taxes are lower than the US.


Not an unusual situation at all. And, there is a little matter of whether using the FTC for earned (salary) income is considered a "revocation" of your option to take the FEIE. If so, you have to get permission from the IRS to go back to the FEIE if you find in a later year that it's more to your advantage. (Plus, I think there is some minimum number of years after taking the FTC on earned income before you can elect the FEIE option again.)

Save the FTC for investment and other "passive" forms of income if your goal is simply to avoid having to pay tax on income sourced outside the US.
Cheers,
Bev


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## Moulard (Feb 3, 2017)

Solost,

No probs...

Just happens that in every country I have lived it has been the other way round. Taxes on wages were either the same or higher than those for passive income and they have always been higher than the US federal rate.

If you have any specific 1116 questions after you have read the instructions, feel free to fire away. I know the first year I used it I had to read them several times to try to parse it into something meaningful.

Bev,

You only need to get permission from the IRS if you want to go back to the FEIE in the first 5 years that permission is via requesting a ruling. After that there is no need to get permission.


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## solost1992 (Apr 2, 2014)

Moulard, you may be sorry you volunteered your services, lol. Thanks.


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## Veronat (Feb 18, 2018)

About form 2555, if you revoke or revoke by accident, doesnt matter, you have to wait 5 years to allow to use FEIE again. 
Form 1116, if you dont use your FTC within 10 yrs, then after 10yrs you will lose that credit.


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## Moulard (Feb 3, 2017)

Veronat.

Additionally, if you do not file your tax return in a timely manner you will have also been deemed to have revoked the FEIE too.


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## jenplus4fr (Jun 5, 2016)

Moulard said:


> Solost,
> 
> If you have any specific 1116 questions after you have read the instructions, feel free to fire away. I know the first year I used it I had to read them several times to try to parse it into something meaningful.


Apologies to the OP for hijacking here, but I'm wracking my brain trying to figure out what exactly the 1116 is doing. I wish I could find a general explanation, and I'd figure out the math. Anyway, I'm filing FEIE, and I would like to file FTC for passive income (I'm good there) and for the amount of earned income that exceeds the exclusion. If I read the instructions correctly, in line 1a, I'd put the non-excluded amount, then I prorate the standard deduction using total earned income (3d) and total gross income (w/o exclusion) (3e). This prorated deduction is applied to the non-excluded salary then? That would seems a bit much.

I've figured out how to reduce the corresponding foreign tax paid.

I'm using TaxAct, and am just not sure of what amounts to enter in some of their fields. The fact that I cannot view the final form doesn't help. If I'm missing something here, please say so!

Help?
Jennifer


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## Bevdeforges (Nov 16, 2007)

Carry on with the TaxAct software, trying the numbers you're getting as you think they should go (or the "other" way). You should be able to see the final form in draft form before you finalize everything. They do give you a chance to go back and "correct" your entries - which is how you figure out which numbers go where in their questionnaire. 

In fact, there should be an option somewhere in the software that allows you to go directly to the form (rather than to their questionnaire) to "fix" something. But if you can't find it, just keep going, but stop short of "finalizing" your return so you can see how the forms will look.


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## Jca1 (Aug 7, 2019)

Maybe this is obvious, but before you submit, check the figures over and make sure you didn't accidentally claim some of the same income on both the FEIE and the FTC. I accidentally did that once, and the IRS adjusted it for me and sent me a small bill.


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## Moulard (Feb 3, 2017)

jenplus4fr said:


> Apologies to the OP for hijacking here, but I'm wracking my brain trying to figure out what exactly the 1116 is doing. I wish I could find a general explanation, and I'd figure out the math.


Are you aware of Pub 514?
https://www.irs.gov/pub/irs-pdf/p514.pdf

Pub 514 used to have a good worked example but it does not seem to be there anymore. However this site has it in it... 

Forms 1116 « Comprehensive Example — Filled-In Form 1116

In very simple terms... there are a couple of calculations that you have to do. 

One, you have to divide your foreign taxes into components

So if you had 100k in foreign wages and 25k in foreign interest, then you would assign 80% of your foreign tax credits to the general category and 20% to the passive category. So if your foreign taxes were 20k then you would assign 16k of your taxes to general and the remaining 4k to your passive category.

Next, if you are claiming both the FEIE and FTC (because your earned income is above the FEIE limit) then you must exclude that portion of your available foreign taxes.. so again using the numbers above... lets say that the FEIE limit was 90k, and you excluded the 90k and were left then with 10k of wages.

You would have to adjust your foreign taxes available to 1.6K being 10% of the 16k in general category foreign taxes.

If your local tax rates are over the US rates, you may find it is simply easier to forgo the Foreign Earned Income Exclusion and go with straight FTCs.

If you cannot follow the example in the link PM me and I will share with you a fully worked out version that I created to help me to understand it all.


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## jenplus4fr (Jun 5, 2016)

Bevdeforges said:


> Carry on with the TaxAct software, trying the numbers you're getting as you think they should go (or the "other" way). You should be able to see the final form in draft form before you finalize everything. They do give you a chance to go back and "correct" your entries - which is how you figure out which numbers go where in their questionnaire.
> 
> In fact, there should be an option somewhere in the software that allows you to go directly to the form (rather than to their questionnaire) to "fix" something. But if you can't find it, just keep going, but stop short of "finalizing" your return so you can see how the forms will look.


Yes, I finally called their customer support, and it turns out that I couldn't see the final form since I hadn't paid yet....Got that taken care of, figured out what number to enter, and I was good. Thanks! I did send a note saying that their instructions should be more clearly written there...


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## jenplus4fr (Jun 5, 2016)

Jca1 said:


> Maybe this is obvious, but before you submit, check the figures over and make sure you didn't accidentally claim some of the same income on both the FEIE and the FTC. I accidentally did that once, and the IRS adjusted it for me and sent me a small bill.


Thank you - never hurts to state the obvious. I think I backed out the corresponding foreign tax for the income I was not claiming correctly.


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## jenplus4fr (Jun 5, 2016)

Moulard said:


> Are you aware of Pub 514?
> https://www.irs.gov/pub/irs-pdf/p514.pdf
> 
> Pub 514 used to have a good worked example but it does not seem to be there anymore. However this site has it in it...
> ...


Thank you, this did help. I can't wait until next year to tackle this once again...;-p


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## Bevdeforges (Nov 16, 2007)

jenplus4fr said:


> Yes, I finally called their customer support, and it turns out that I couldn't see the final form since I hadn't paid yet....Got that taken care of, figured out what number to enter, and I was good. Thanks! I did send a note saying that their instructions should be more clearly written there...


Ooh, they're getting nastier and nastier with the tax software. Used to be that you couldn't print the forms until you had paid, so you had to do all your review of the forms online. The restrictions on the free versions are getting tighter and tighter and even the free-file versions through the IRS site really limit those (especially us overseas taxpayers) so that the program is kind of unusable.


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