Foreign tax credit carryover use

Forum|Forum|6 years ago
May 22, 2020
1 reply
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Hi!

I moved back to the US in 2017. If I have carried over foreign passive income credit on foreign taxes from an earlier year and I’m taxed this year by the IRS on foreign capital gains that I was not taxed on by the source country (Canada) due to a tax treaty, can I claim the carried over credit amount? Basically, am I allowed to fill out a form 1116 that has a $0 amount in Part II?

Not A Product Question

rogge1722

Level 10

Yes, you can fill out a form 1116. From the foreign income, it will calculate the foreign tax credit limit and draw from the carryovers for your foreign tax credit.

sfviolinsAuthor

Level 2

Hi!

So this part of Publication 514:

You cannot claim a credit for unused foreign taxes in a year to which you carry them unless you also claim a credit for foreign taxes actually paid or accrued in that year.

Doesn’t mean I’m not allowed to carryover credit to a year that I don’t pay foreign tax, even though I have foreign income?

rogge1722

Level 10

That restriction apparently is new as I was not aware of it. I’ve seen in the past where several users had the same situation as yours; namely foreign income, carryovers, but no foreign tax paid for the current year. The TT interview will still generate a complete f1116 with foreign tax credit even though there is no foreign tax paid for the current year as long as there are carryovers available.

It seems odd that if you had opened up a Canadian bank account paying a paltry interest amount with only a few dollars of foreign taxes paid for the current year, that would have cleared the decks for any amount of capital gains and all the carryovers available.

Any carryovers not used for the current year can be carried forward to next year. Be aware that any portion over 10 years old is lost.