Tax Topic #902 |
2008 Tax Year |
Topic 902 - Credits and Deductions for Taxpayers with Puerto Rican Source Income that is Exempt from U.S. Tax
Bona fide residents of Puerto Rico cannot claim deductions and/or credits
allocable to or chargeable against Puerto Rican source income that is excluded
from a U.S. tax return. The deductions and credits not attributable to specific
income must be divided between excluded income from sources in Puerto Rico
and income from all other sources to find the part that can be deducted or
credited on a U.S. tax return. Examples of deductions not attributed to specific
income include alimony, the standard deduction, and certain itemized deductions
such as medical expenses, charitable contributions, and real estate taxes
and mortgage interest on your personal residence. Personal exemptions are
generally allowed in full.
If you have taxable Puerto Rican source income on your U.S. income tax
return, then you can claim a credit for foreign taxes paid to Puerto Rico.
However, you are not allowed to claim a credit for foreign taxes paid with
respect to Puerto Rican source income that is excluded from a U.S. tax return.
Therefore, to properly calculate your foreign tax credit, you must reduce
your foreign taxes paid by the amount of taxes corresponding to excluded Puerto
Rico source income.
For more information about how to allocate deductions and credits to excluded
income, refer to Publications 570 and 1321
Page Last Reviewed or Updated: December 22, 2008
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