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    PracticeCPA®CPA REG Practice ExamQuestion 35
    Medium1 markMultiple Choice
    Area 3: Individual TaxationIndividual TaxationTax Credits

    CPA · Question 35 · Area 3: Individual Taxation

    Taxpayer has ,000 of U.S. source income and ,000 of foreign source income. Total taxable income is ,000. The U.S. tax liability before credits is ,000. The taxpayer paid ,000 in foreign taxes. What is the Foreign Tax Credit limitation?

    Answer options:

    A.

    ,000

    B.

    ,000

    C.

    ,000

    D.

    ,000

    How to approach this question

    Formula: (Foreign Income / Total Income) x US Tax = Limit. Compare Limit vs Actual Foreign Tax Paid. Take the lower.

    Full Answer

    B.,000✓ Correct
    The Foreign Tax Credit is limited to the proportion of U.S. tax attributable to foreign source income. Limit = (,000 / ,000) * ,000 = ,000.

    Common mistakes

    Taking the full foreign tax paid without checking the limit.
    Question 34All questionsQuestion 36

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