Foreign Tax Credit Question

[rkamp]

I have a client who has 4 rental properties in France. The properties, after depreciation, are running at about a $30,000 passive loss. There is a $1200 income tax on this rental property in France. Can a foreign tax credit be applied for the $1200 instead of taking the $1200 as an expense? Since the net income is a loss, I was thinking that he would not be entitled to the foreign tax credit.

Thanks,

Rick

[DonPriebe]

I have a client who has 4 rental properties in France. The properties, after depreciation, are running at about a $30,000 passive loss. There is a $1200 income tax on this rental property in France. Can a foreign tax credit be applied for the $1200 instead of taking the $1200 as an expense? Since the net income is a loss, I was thinking that he would not be entitled to the foreign tax credit.

The foreign tax credit is essentially an offset equal to the foreign tax applied to the US tax on the activity. Since the activity shows a loss when using the US accounting criteria, there is no US tax to offset and the foreign tax credit is zero. [Here I think we agree].

I would take the $1,200 as an itemized deduction on Schedule A under other taxes.

{Is the difference between the French and the US accounting due to depreciation? I know that is the case for Canadian property, where the Cost Recovery Allowance (depreciation) is optional.}

[rkamp]

The foreign tax credit is essentially an offset equal to the foreign tax applied to the US tax on the activity. Since the activity shows a loss when using the US accounting criteria, there is no US tax to offset and the foreign tax credit is zero. [Here I think we agree].

I would take the $1,200 as an itemized deduction on Schedule A under other taxes.

{Is the difference between the French and the US accounting due to depreciation? I know that is the case for Canadian property, where the Cost Recovery Allowance (depreciation) is optional.}

Thanks. The French tax is a flat tax based on gross rental income, not net income.
I will take it as an itemized deduction.