I tested two methods of reporting foreign pension that is not taxable in the US (by Treaty). Method 1: I did a substitute 1099R (4852) and reported the income but indicated taxable amount as zero. My refund would be $1254. Method 2: I reported the foreign income as Misc income and also reported the taxes paid and took a credit. My refund went down to $383 but I got a $2077 credit. I already have about $7000 foreign tax credit carryover from last year. I'm wondering how I'd ever be able to use it? (Would it offset future capital gains tax, or interest/dividends I earn?) I'm trying to decide whether to take the larger refund or continue to accrue foreign tax credit and hope I use it before the 10 years.
