If Harry takes the foreign tax deduction, how much of his foreign income is taxable?

When considering the foreign tax deduction, it is important to understand how it interacts with gross income. The correct answer indicates that if Harry opts for the foreign tax deduction, he is reporting $1,500 of his foreign income as taxable.

To clarify, the foreign tax deduction allows taxpayers to deduct certain taxes they have paid to a foreign government from their taxable income. However, this deduction does not reduce the amount of foreign income that is considered taxable; it merely provides a deduction from the overall taxable income.

In this particular scenario, to arrive at the figure of $1,500, it can be surmised that Harry has other foreign income that, in conjunction with the taxes paid or the deduction he is utilizing, results in a total foreign income subject to U.S. taxation. This specific amount reflects the taxable portion of his foreign income after taking into account the tax credits or deductions available for taxes previously paid overseas.

The overall understanding here is that Harry’s final taxable income from foreign sources after possible deductions leads to the conclusion of $1,500 being subject to taxation.