@ThomasM125 There's more to it than that. I'll take one more shot with some examples:
1) If you have no foreign source income in the current tax year, Form 1116 formulas dictate that no foreign tax carryover can be converted to a credit. On this we agree. But it's not about double taxation per se--it's about the fact that Form 1116, line 3f is set to zero when 2023 foreign income is zero.
2) As a second example, I added a test entry to my completed 2023 Fed return which happens to have about $2,600 in available foreign tax carryover for 2023 and about a $5,600 Fed tax liability available for foreign tax credit offset. The entry is a simple $100 foreign stock divided with a $15 foreign tax from box 7 on the 1099 with no other variables. What then happens is Form 1116, line 3f is now calculated by TurboTax as a very small factor that ends up resulting in a $6 foreign tax credit with the remaining $9 of the 2023 foreign tax added to carryover to 2024.
So far so good, I guess. It matches what a manual calculation of line 3f would yield.
3) I ran another test replacing the dividend entry in 2) above with a simple foreign stock dividend of $100,000 with a box 7 foreign tax paid of only $1. This large amount of foreign source income relative to total income results in a much, much larger factor in line 3f than in example 2).
The end result is all of the $2600 in foreign tax carryover to 2023 plus the $1 in foreign tax from the test entry were calculated as a foreign tax credit flowing through to 1040, Line 20 and thereby reducing the 2023 tax liability by the self-same $2601.
So riddle me this: How does adding $1 in foreign tax payments reported in the current return, and by extension $1 in the aggregate across the previous 11 years including the carryover foreign tax, suddenly result in a $2,601 recognition of "double taxation"? The answer is that it doesn't. The maximum change to double taxation is $1. The results of this example are a peculiar artifact of the internal logic of Form 1116. The rationale behind this logic could be articulated perhaps in English but we'd have to ask whoever drafted the relevant tax code.
While example 3) is an extreme case, less extreme examples yield less extreme results demonstrating the same point. Again, this is not a TurboTax problem. It's a peculiarity of the tax code that is not entirely explainable with boilerplate language about double taxation.
