Who This Applies To
Most filers never encounter this category. It typically comes up for U.S. citizens or residents living in a specific tax treaty country (for example, Canada) who have certain types of income — often retirement income, or income covered by a treaty's relief-from-double-taxation provisions. If you don't have income connected to a tax treaty, you can likely skip this category entirely.
What It Is
Under a treaty's re-sourcing provision, income that would normally be considered U.S.-source can be treated as foreign-source for purposes of the foreign tax credit — but only if you elect to apply the treaty.
A treaty sourcing rule treats your U.S.-source income as foreign source, and you elect to apply the treaty. If you make this election, you must treat the income as foreign to the extent required by the treaty.
Only the income explicitly re-sourced by the treaty should be reported here — not all foreign income. General foreign income belongs in other categories, such as General, Passive, or Foreign Branch.
Reporting Requirements
- You must compute a separate foreign tax credit limitation for each amount of re-sourced income from each treaty country.
- Use a separate Form 1116 for each treaty-affected income group.
- If you claim a foreign tax credit because of a treaty provision, you may also need to file Form 8833 (Treaty-Based Return Position Disclosure).
What Happens to the Number After Part I
After you complete a separate Form 1116 for your treaty-resourced income, the credit amount from Line 24 of that form gets added to the amounts from Line 24 of your other treaty-resourced Forms 1116 (if you have more than one), and the total is carried to Line 30 of your summary Form 1116 — the main Form 1116 where you complete Part IV.
Program Navigation (Where to Enter)
- Federal
- Deductions (Select my forms)
- Credits
- Foreign Tax Credit
- Form 1116
- Income re-sourced by treaty