This is an FYI-only about a circumstance I recently discovered, a pretty simple one.
I have no foreign source income (and thereby no foreign tax paid) for the current year's return, the 2023 return at this writing. However, I have a meaningful amount of foreign tax credit carryovers, all from stock dividends and reported on 1099s, accumulated in dribs and drabs over the last 10 years. Yet I'm getting a calculation of zero foreign tax credit on my 2023 Fed return despite having a meaningful amount of tax due to offset. I discovered this is not a mistake or miscalculation by TurboTax.
What I discovered in manually working through the Form 1116 calculations is that if there is no foreign source income for the current tax year certain factors in the calculations get set to zero which end up resulting in a zero bottom line for the credit. There is no way around it. I did not look at anything related to income other than dividends--whether that's different I can't say.
It would be too exhausting to explain, but there is an internal logic to these calculations. But one can't help but think there could be a better way. Maybe this is one reason why the IRS offers the deduction vs. credit option as a way to derive some benefit in circumstances like this but that ain't no help if you don't itemize. As it stands, without anticipating buying foreign dividend paying stocks in the future, my carryovers will continue to expire bit by bit. I'm beginning to think "good riddance".
