I am having H&R Block do my return. They have my K-1 and they are only allowing a percentage of the foreign tax paid to offset my Fed tax. Anyone else know about this limitation? It does not sound correct. I am talking about a total foreign tax paid of $196 and I only got a $21 credit. Does this make sense to anyone else? It seems to me most are simply puting the full amount on Line 47 but are those people doing this incorrectly?
So let's say that 15% of the dividend is withheld for foreign taxes. And let's say that the K1 shows that half of that is a non-taxable return of capital.
(It's been a couple weeks since I paid my taxes, I may be misremembering things) This results in the following: You cannot claim the full credit for foreign taxes paid, since the amount which you would pay in US taxes is less. There's a little math to determine how much of it you can claim as a credit. The excess gets carried over.
This would seem to imply that if / when a US owner of PGH sells (wishful thinking applies), that the carryover might be applied against the capital gains (if any)?
This is correct. Any unused amount can be carried over to 2009. I paid over $2,500.00 in Canadian taxes in 2008. No way do you get back dollar for dollar as a credit against U.S. taxes. Form 1116 takes care on that!!