Here is how the Foreign Tax Credit is determined.
Your foreign tax credit cannot be more than your total US tax liability multiplied by a fraction. The numerator of the fraction is your taxable income from sources outside the United States. The denominator is your total taxable income from US and foreign sources. Here's an example on how this works.
If your tax liability on Line 24 of your 1040 is $5000, your foreign income is $11,728, and your total income, foreign and US income, is $50,000. The foreign tax that can be claimed for this year is ($5000)($11,728/$50,000)=$1173. This is the maximum amount of credit that can be claimed this year. Any excess foreign tax credit can either be carried back to a previous year or carried forward for 10 years to offset any past or future foreign tax credit paid on foreign income. So if you had a $5000 credit, $1173 will be credited this year while $3827 will be a carryback or carryforward, or both.
TurboTax does not have calculation worksheets to demonstrate how the credit is calculated, but it does use the formula I described above in the Smart Worksheet to determine the credit.
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