Schedule E and 1116: High expenses on my foreign rental property are limiting my foreign tax credit
My wife and I have income for a house in the UK that we bought in 2011. 2012 was the first year for which we received rental income and, as it was the first year, we had a relatively high level of expenses.
The high level numbers are:
Income = $35,000
Paid = $5,000
Expenses = $20,000
Depreciation = $12,000
When I enter these details into Schedule E, my effective income becomes $3k (ie total rent minus expenses and depreciation). This makes sense to me.
When I complete 1116, the fact that my expenses are high means that my net income for the property is (as above) $3k which limits the tax I can claim. As a result of this, I can claim only $3k of my foreign tax credit which is lower than the amount I actually paid.
Because the UK does tax on a slightly different calendar (April 5 2012 to April 5 2013 is the current year), although I do expect to get a refund from there, I won't get it until September 2013 (when I file for the appropriate year).
Therefore, what do I do? Is there some way to get a higher foreign tax credit now given the fact I did pay a lot of tax in the UK? Or do I file as above, wait for my UK taxes, hopefully get a refund there and then refile my US taxes now with a lower tax number?