@fabienne
dividends for stocks I own in the US are foreign source and dividends/cap gains distributions for mutual funds I own in the US are foreign source
Yep.
Sales of those stocks and mutual funds would not be included in foreign source.
That's right.
US Company Pension, Social Security, 401K distributions, IRA distributions
All of these are foreign source. Though it's worth noting that the US has no right to tax them under the US-Japan treaty, so you can't claim a foreign tax credit with respect to any US tax you pay on them (instead you have to claim a foreign tax credit in the US). They are still included in "foreign source income" for the purposes of calculating your foreign tax credit allowance though.
Basic Interest from investment accounts
Interest is generally sourced wherever the entity paying the interest is located, so interest paid by an overseas entity would be foreign source. The maximum rate at which the US can tax interest paid to Japanese residents is 10%, so you can claim a foreign tax credit in Japan with respect to any US tax on you pay on US-source interest up to a maximum of 10%. If you pay a higher rate than that in both countries, you must claim a foreign tax credit in the US with respect to the portion in excess of 10% paid in Japan.
example from tax accountant Kanayama
Yes, that example is a little strange. Capital gains generated by the sale of US stock can be foreign-source income in a few very specific circumstances (prescribed by
Ordinance 255-4 of the regulations under the Income Tax Law), such as when the relevant company is a REIT, or when the sale is part of a corporate merger/acquisition. But in general the sale of listed US stock by a consumer investor doesn't generate foreign source income, as you can see from the ordinance linked above.
It's not hard to find examples of reputable tax accountants confirming this consequence of Ordinance 255-4 either (e.g.,
here and
here). I suspect Kanayama just didn't give much thought to their example of foreign source income, since it's not relevant to the point of their article.