Freddy, a U.S.resident, receives $60,000 of foreign-source passive category income on which foreign taxes of $25,000 are withheld.His worldwide taxable income is $230,000.Freddy's U.S.tax liability before FTC is $80,000.Assuming a personal exemption of $3,100, what is Freddy's FTC?

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Quizplus · Accepted Answer

Freddy's FTC is the lesser of the foreign taxes paid (i.e. $25,000) or the proportionate amount of U.S. tax liability required for foreign income (i.e. $80,000 x $60,000/$230,000 = $20,868.69 rounded to the nearest dollar). Therefore, the FTC is $20,574, which is the lesser of the two amounts.