Deductions & credits

The IRS limits your credit to the lesser of:

1. The foreign tax you actually paid. 
2. The portion of your US Tax Liability that is attributed to that foreign income.
3. To find your Maximum Allowable Credit, use this formula:

 FTC Limit=U.S. Tax Liability X Foreign-Source Taxable Income/Total Taxable Income 

1. If your Foreign Tax Paid is HIGHER than this result: You have "Excess Credit." You can't use it all this year; it must be carried over. 
2. If your Foreign Tax Paid is LOWER than this result: You should be getting the full credit. If TurboTax is limiting you anyway, there is likely an "Adjustment" error.

If your foreign income comes from Qualified Dividends, the calculation above changes. The IRS requires you to "weight" those dividends because they are taxed at lower rates (0%, 15%, or 20%).  If your software is forcing an adjustment on Line 18 of Form 1116, it is likely multiplying your foreign dividends by a fraction (like 0.4054 or 0.5405). This effectively shrinks your "Foreign Income" in the eyes of the IRS, which in turn lowers your "Allowable Credit."

If this doesn't address your specific issue, please reach out to us again. You shouldn't need to figure out your FTC limit.  If it is asking you to do so, where is it asking you to do so?