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But after filling out form 1116, I end up with a little more in taxes than if I use Schedule A. Maybe I'm not doing it right. Form 1116 asks for all the income from the countries where foreign tax was paid. So I added up all the dividends, interest and capital gains from those countries and entered them on 1116. And that cut my foreign tax credit from $1149 (the actual amount of the foreign tax paid) down to $343. So it's better to take the deduction for the entire $1149.

I suspect you're not doing it right. For an $1149 deduction to be worth more than a $343 credit, your marginal tax rate would have to be 30% or higher.

Form 1116 is tricky to complete if you don't know exactly what you are doing (or have software to do it for you). For instance, you shouldn't include capital gains in your foreign income except in the rare circumstance where you maintain a tax home outside the US, sell personal tangible property, and pay more than 10% tax on the gain to a foreign country. Determining the correct amounts for the other input lines can be equally non-intuitive.

Ira
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