Exercise 13-18 (Algorithmic) (LO. 4) In 2017, Henri, a u.s. citizen and calendar

Question

Exercise 13-18 (Algorithmic) (LO. 4) In 2017, Henri, a u.s. citizen and calendar year taxpayer, reports $58,000 or income from France, which imposes a 10% income tax, and $87,000 from Italy, which imposes a 40% tax. In addition, Henri reports taxable income of $116,000 from within the United States. Henri is married filing a joint return, and he claims three dependency exemptions. Henri's U.S. tax before the foreign tax credit is $29,000. Round any division to two decimal places and round your final answer to the nearest dollar. Henri's foreign tax credit is 16,111 X

Explanation / Answer

1. Computation of creditable foreign income taxes.

France tax = $58,000 x 10% = $5,800

Italy Tax = $87,000 x 40% = 34,800

Total creditable foreign tax = $40,600

2. Limitation

Limitation on crediit = Pre credit US tax X Foreign income / total income

Pre Credit US tax = $29,000

Foreign Income = $58,000 + 87,000 = $145,000

Total Income = $261,000

Limitation = 29,000 x 145,000 / 261,000 = $16,111.11

Foreign tax credit is avaialble upto the limit of $16,111 only.

Henri's foreign tax credit = $16,111

I think your answer is correct, try using 16,112. Might be a possibility that system is over-rounding the calculation. KIndly comment the correct answer if it is different from ours.

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