Asked by ravdeep singh on May 07, 2024
Verified
In which of the following situations would a taxpayer be better off to take the foreign taxes paid as an itemized deduction rather than as a foreign tax credit?
A) The foreign tax paid was less than 10% of AGI.
B) The foreign tax paid was to a South American country.
C) The foreign tax paid was a property tax.
D) The foreign tax paid was an income tax.
Foreign Taxes Paid
Taxes paid to a foreign government for income earned in that foreign country, which may be creditable or deductible on a U.S. tax return.
Itemized Deduction
Deductions that taxpayers can claim for certain personal expenses, instead of taking a standard deduction. These can include expenses for healthcare, taxes, interest, and gifts to charity.
Foreign Tax Credit
A nonrefundable tax credit for income taxes paid to a foreign government, aimed at reducing double taxation.
- Differentiate between circumstances when the foreign tax paid should be taken as an itemized deduction versus as a credit.
Verified Answer
ZK
Zybrea KnightMay 07, 2024
Final Answer :
C
Explanation :
The taxpayer would be better off taking the foreign taxes paid as an itemized deduction rather than as a foreign tax credit when the foreign tax paid was a property tax. This is because the foreign tax credit is generally available for income taxes paid to a foreign country, not for property taxes. Property taxes can be itemized deductions if they are related to personal property, which could provide a greater benefit depending on the taxpayer's overall tax situation.
Learning Objectives
- Differentiate between circumstances when the foreign tax paid should be taken as an itemized deduction versus as a credit.