Mutual funds holding foreign equity and foreign tax credit?
July 20th, 2010
I have two mutual funds that hold some foreign equity. I am assuming there are foreign taxes that will be paid related to these. Will I be able to get a foreign tax credit for the taxes paid? What if these are held in a Roth IRA?
If the funds are in a Roth, would I be able to apply a FTC if I have taxable passive income from other sources, or still no?
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Tags: foreign taxes, ftc, mutual funds, passive income, roth ira, tax credit
Inside a roth, no, no credit, no deduction because this is income that is already tax-exempt. If you aren’t paying taxes here, you don’t get a credit here.
The same is true of a traditional IRA (you simply don’t get taxed on money that is no longer in the account).
If this is a taxable account and the amount of foreign tax is under $300 and shown on your 1099-DIV statements, you will just claim the credit on your taxes. If the amount is more than $300, you get to have your tax preparer do a form 1116 and odds are you won’t get all the credit.
Edit. As another poster pointed out, the IRS matches the tax to the income. You have to pay taxes on the same income that generated the tax to get a tax credit.
For taxes income not shown on a 1099 form, the foreign tax credit is limited to the amount of U.S. tax paid on the income that was subject to foreign tax. Since no U.S. tax was paid on the foreign income (even if U.S. tax was paid on other income) and no 1099-DIV form is issued for income from funds held in a Roth IRA, you would receive no foreign tax credit.
Yes.