Thanks.

Thanks, Itonewbie.

The TP is a US citizen residing in the US since 2015. He worked in Canada in past years and took the election to tax Canadian retirement income as it is distributed. His FTC carryovers appear to be related to salaries and this appears to be the first year he has taken retirement distributions.

What you say makes sense. So this appears to be general limitation income since it is distributions from retirement plans related to his employment?

I wonder why every source I read regarding foreign retirement income said it is reported as lump-sum distribution income? The passive and general limitation categories never listed retirement income. I guess that is what threw me off.

Thanks for your help.

Glad it helps, David!

You are correct it is general limitation because the contributions are related to his employment.

There would have to be a part of the distribution that represents earnings, which belongs to the passive basket.  You will need to dig a bit deeper.  This wouldn't make a difference if it were an IRA but would for FTC limitation purposes.

Okay, that makes sense. I hope the TP is able to get that information. It seems as though contributions and earnings are mixed in these accounts and nobody knows how much of the balance is from contributions and how much is from earnings.

Thanks for your help.

Cheers!

Ignoring the foreign tax, does the client have a federal tax liability?

Yes.

AGI is $223K of which $101K is from Canadian retirement income. Taxable income is $185K and, after Sch A allocations, Canadian taxable income is $85K. This amount has carried over from the wks to line 17 F1116.  However, nothing is carrying over from F1040 to F1116 lines 18 on.

The foreign tax in USD is showing on lines 8 and 9 of F1116 and the carryover amount is correctly showing on line 10.

However, no tax credit is being calculated or allowed.

Since I checked the lump-sum distribution box (which seems to be the only box to check for retirement income), F4972 popped up. Even though I checked the no boxes indicating the TP was not born before 1936 and did not qualify for lump-sum tax treatment, an error message appears on line B in the lump-sum smart worksheet below line 21 on F1116. The program wants me to enter an amount from F4972. Of course there is nothing from F4972. When I enter the $85K foreign income taxable amount, an error message says that this amount shouldn't be larger than lines 6 and 12 on F4972.

Is the problem the result of checking box g lump-sum distribution category on the wks? The instructions seem to indicate that this is the only income category for retirement income.

When I click box d general category income then the calculation appears to be correct and it is allowing a FTC.

The instructions say that general category is wages. Does it really matter which category I indicate?

I'm tempted to leave it marked as general category income since the calculation is correct. Will this create a problem going forward?

In my first post I mentioned the TP has prior year FTC carryovers in the general income category for wages paid in Canada. Does it matter going forward that the carryovers are a mixture of wages and retirement income?

Thanks for your help.

I think the 4972 is the problem. On Form 116 it can matter what box you check. This sounds like General limitation income but when I have anything other than int & divs (and somethimes even then) I get the 1116 instructions and read.

@itonewbie Any sage advice here?

Thanks. I have read the instructions over and over and checked the IRS website. It seems that all the instructions state that retirement income is to be classified in the lump-sum category. I find this strange since the retirement income may not be eligible for the lump-sum tax treatment. The instructions state that the general category is for wages, salaries and overseas allowances.

I just can't figure out why the PS program doesn't calculate the FTC when the lump-sum box is checked, yet it does when the General Income box is checked.

I really appreciate any help.