“1) I read somewhere that the foreign tax credit can be entered in Schedule A. If so, which field, or line, would it have to be entered in?”---->1) On 1040 Sch A on line 8. If you do not itemize deductions on Sch A, then you can’t claim your foreign tax deduction; as you know, the foreign tax credit is designed to prevent double taxation between the US and foreign nations. If you're able to make full use of it, you'll get a larger tax benefit than if you claim a deduction for foreign tax paid. The reason is that a credit reduces your tax while a deduction only reduces your income. For instance, assume that you're in the 25% tax bracket and you have a choice between a $200 deduction or a $200 credit. If you claim the $200 deduction, your income goes down by $200, and your tax goes down by $50, 25%*$200=$50. If you claim the whole $200 credit, your tax goes down by $200. At this point, needless to say, you need to take the credit, not the deduction. But there are two reasons the deduction may be the better choice:the foreign tax credit limitation may prevent you from getting full value from the credit. The form needed to claim the credit is complicated. You don't automatically get to claim the full amount of foreign tax paid as a credit. The law is designed to limit this credit to the amount of US tax you would otherwise pay on the same income. For example, assume that you receive $2400 foreign income and pay $720, 30%*$2,400=$720, foreign tax. Due to your low tax bracket and various deductions, your US tax liability on this income is, say, $240, 10%*$2,400=$240. That means you can only claim $240 as a credit.If the reverse were true (you paid foreign tax of $240 when your US tax liability on the same amount would be $720) you still get only $24, NOT $720, credit because that's all the foreign tax you paid. You always pay the smaller amount: the foreign tax or the limitation amount.However, In genral, even when the limitation applies you come out better with the credit than with the deduction. In unusual cases the deduction will work out to a larger tax savings than the credit.
2) You MAY report income tax paid to a foreign country on your 1040 line 47; you need to attach the form 1116 to reduce yur tax liability on 1040.
Please visit the IRS Website here;
http://www.irs.gov/pub/irs-pdf/i1040sca.pdf http://www.irs.gov/pub/irs-pdf/i1040gi.pdf
“2) The property had land plus a home, and the sales proceeds was shared by the heirs (four in all). This question is about someone who inherited the share of one of the four primary heirs. Does this make a difference?”---->I guess if you pay both LTCG tax and inheritance tax to the foreign taxing authority, then you can claim your LTCG tax paid in the foreign country on 1040 line 8 or on Form 1116. However, you cannot deduct your foreign estate and inheritance taxes on Schedule A. As you can see, there is no federal inheritance /estate tax in 2010 in US; on January 1, 2010 a one year repeal of the tax was effectuated by a temporary, one-year-only rate of 0%. On January 1, 2011 the estate tax is scheduled to a top rate of 35% and the exemption amount is scheduled to be $5M or $10M for married couples.;law passed in December 2010. Also I guess, many U.S. states also impose their own estate or inheritance taxes,i.e., Ohio estate tax for an example and some, such as Kentucky, impose both estate and inheritance taxes; however, the amount of your portion of the inherited property is less than $1M, I guess, NOT sure, then you do not owe stae level estate/inheritance tax. You CAN’T claim your foreign inheritance/death tax on your state return, either.
Please visit the IRS Website here for more information in detail;
United States Income Tax Treaties - A to Z
Hybrid Mode
