By Lynnley Browning

(Reuters) - Mitt Romney and his wife, Ann, more than doubled their investment income from foreign sources in 2011 versus 2010, including some sources in tax havens around the world, according to tax returns released by the Republican presidential nominee's campaign.

The Romneys reported $3.5 million in foreign income out of $13.7 million in 2011 adjusted gross income, the benchmark figure used to figure out taxes owed.

That compares with $1.5 million in foreign income on 2010 adjusted gross income exceeding $21.6 million, according to the Romneys' tax returns for 2010 and 2011.

That means the Romneys last year derived just over a quarter of their income from non-U.S. investments, such as funds and entities in Bermuda, Luxembourg, the Netherlands, Ireland, and the Cayman and British Virgin Islands, the returns showed.

In 2010, the Romneys' foreign income was just 7 percent of their adjusted gross income, which was much higher that year.

While the Romneys' tax strategies are legal, their large share of foreign-sourced income highlights the difference between their tax returns and those of average Americans.

Asked why the Romneys' foreign income had grown, a spokeswoman for the Republican candidate declined to comment.

Brad Malt, the partner at law firm Ropes & Gray who oversees the Romney's financial affairs, was traveling and could not immediately be reached for comment.

Their foreign income comes from dividends, interest, asset sales and carried interest - a special form of income received by partners in private equity funds and some hedge funds.

TAX BREAKS LEGAL

Romney is one of the wealthiest Americans ever to run for the White House. He released his 2011 tax returns on Friday under pressure from Democrats and amid scrutiny of his finances.

He has cited his success in business and investing as a key qualification in his bid to oust Democratic President Barack Obama in the November 6 election.

Romney co-founded private equity firm Bain Capital in 1984 and retains stakes in the firm's funds.

Obama and his wife, Michelle, also have foreign-sourced income, chiefly from book sales. Their investment income is almost entirely from U.S. sources, their tax returns showed.

Romney has estimated his net worth at between $190 million and $250 million.

The Romneys' tax returns highlight the degree to which wealthy investors like t he former Massachusetts governor u se preferential tax breaks for certain types of investments.

Those tax breaks include the 15 percent long-term capital gains tax rate on income from assets held for at least a year, and the 15 percent tax on carried interest. Wages, by contrast, are taxed at a top rate of 35 percent.

The Romneys' foreign income is shown on Form 1116 of their personal tax return. While the return has several Form 1116s, depending on the type of investment, the one that shows where the Romneys derive their foreign income is the one for passive investments, such as dividends and interest.

David Kautter, a tax and accounting professor at American University, said the best way to determine the role foreign earnings play in total income is to divide the Form 1116 figure for "gross income from sources within country" by adjusted gross income.

FOREIGN INVESTMENTS FARE BETTER

Despite the growth in their foreign earnings, the Romneys' adjusted gross income fell sharply in 2011 from 2010.

"What this tells you is that his foreign investments are doing better than his domestic ones," Kautter said.

Another sign of the role foreign investments play in the Romneys' wealth comes from foreign long-term capital gains, or profits from sales of foreign assets and receipts of carried interest from foreign entities.

Of $6.8 million in total worldwide long-term capital gains reported for 2011, $4.5 million, or two-thirds, came from foreign assets, according to their return for that year.

That disclosure comes on Form 8938, which investors with foreign assets had to use for the first time last year for certain foreign assets, preventing comparisons with previous years.

The Romneys' investments "are prudent for any investor of wealth," said Charles Sarowitz, a managing partner of Sarowitz Milito & Co., an accounting firm in Brooklyn, New York, that prepares returns for high-net worth and other investors.

Romney holds many investments in many funds run by Bain Capital. These and other investments are housed in his Individual Retirement Account, or IRA, as well as in three trusts.

The three trusts - one held by Romney, the second by Ann and the third a family trust - increased their investment activities with foreign entities last year, the 2011 trust returns show.

Overall, the Romneys received income from 50 foreign investment corporations last year, nearly three times the number in 2010, the returns show. (Additional reporting by Mark Hosenball.; Editing by Kevin Drawbaugh and Howard Goller. Desking by Christopher Wilson)