How do I claim a foreign tax credit carry over from a pervious year?

[Darby66]

How do I claim a foreign tax credit from a pervious year? In other words, I have a foreign tax credit carryover from a pervious year and I want to collect it this year. How do I do that? TT does not automatically do it I've noticed.

[ThomasM125]

Choose the Foreign Taxes option under Estimates and Other Taxes Paid, in the Deductions and Credits section of TurboTax.

Work through that section and indicate that you want the foreign tax credit as opposed to the foreign tax deduction. Eventually you will come to a page where you will be asked to enter your Foreign Tax Credit Carryovers:

 

Be mindful that you can only receive a foreign tax credit to the extent you have US income tax on foreign income, so you would need foreign income in the current year to receive a foreign tax credit.

[Darby66]

Thomas,

Thank you for your reply.  I understand your directions and I've tried to do what you say with a little test.  I tried sticking in numbers in the form 1116 step-through that creates a hypothetical situation to see if TT would move my carry over foregin taxes paid from previous years to the current year.  For example, I poked in numbers like, I only paid $10 in foreign taxes but make $5000 in foreign revenue, thinking that would trigger the carry over from previous years to move to this year.  No joy, it just gave me the $10 foreign tax credit for this year and the previous years carryover amounts stayed stuck in those previous years. 

Can you think of a combination of foreign taxes paid and foreign revenue earned that would trigger the previous years' carryovers to get moved to a foreign tax credit for the current year?

If I can find such a combination of foreign tax paid to revenue earned, then all I have to do is find an investment with the right ratio, buy it and wait till next year to file my taxes in the hope that I'll get my hands on the carry over from previous years.  Does that sound like a reasonable strategy?

Is there any other way you can think of that I could get at my pervious years' foreign tax carryovers.  In my case it amounts to about $2500.  Not a whole lot but, darn it, I want that back!

Many thanks

[ThomasM125]

I made some entries and didn't have any trouble. I entered $10,000 of foreign income and $10,000 of unused foreign tax credit from 2013 and received a $1,723 foreign tax credit. Does your foreign credit carryover screen and form 2116 look similar to these screen shots? It is possible you are entering the foreign taxes listed in the first column into the Amount Used column by mistake. The amount used is the amount of the credit from the previous year that was used in that year, not the amount you want to use in the current year.

[Darby66]

Hi Thomas,

Thank you for taking the time to work with me on this.  Know that I have no trouble navigating around TT, I've been using it for decades and I'm very used to it.  Yes, I see the screens you have sent screen shots of and I can make all the entries you are making.  Unfortunately I'm not seeing the same results from TT that you are.  

My foreign taxes held back in previous years are from more recent years than 2013.  I'm aware of the fact that the foreign tax carry over expires after 10 years.  I tried to copy your example to see if I got the same result as you so I plugged in a foreign tax from 2013 like you did of $2000 (not $10000 like you but a number I might actually have, should get the same result).  I made my 2023 foreign tax paid $100 on $1000 of foreign revenue.  I was hoping that maybe TT would give me the full $100 from 2023 as a credit and additionally move some of the 2013 $2000 to part of 2023 to make it something over $100.  Instead I see on Sch B for 1116 line 5 that (as I expected) the $2000 I entered for 2013 expired, went away.  From line 4 of Sch B form 1116, the foreign tax carry over used in current tax year was $0.

Furthermore, looking at Form 1116 Comp Wks, of the $100 foreign tx paid on $1000 revenue in 2023, TT only utilized $19 in 2023 and held back $81!  What the ???  Why don't I at least get the whole foreign tax paid in 2023 back in this example?

I don't understand why in your example the $10,000 foreign tax carryover you created didn't similarly expire like mine did.  When I do your test, $0 are moved from 2013 (or any previous year) to a 2023 tax credit, instead all of the 2013 amount expires, and nothing is moved from any previous year to this year, in fact some of this year's foreign tax paid is held back.

Below is a screen shot of my actual foreign tax held back from 2018 to 2022.  Also the $2000 amount I stuck into 2013 trying to duplicate your test.  Before entering the 2013 test, i.e. with 2013 as $0, I tried various combinations of foreign tax paid and foreign revenue for this year, 2023.  The best I could get was coaxing TT to move a few dollars from the 2018 amount to 2023.

Can you replicate my actual foreign tax withheld numbers from 2018 to 2022 and then come up with a foreign tax paid on foreign revenue earned combination in 2023 that causes TT to move all of the foreign tax withheld from 2018-22 forward to a 2023 tax credit?  Or is there some other way to get TT to move the foreign tax held back in 2018-22?  

Please stick with me and help me out.  

Thank you very much for helping me with this,

Darby

[ThomasM125]

You can only get a foreign tax credit to the extent you have US tax on foreign income in the current year.  Your foreign income would be divided by your total income to come up with a percentage. You would multiply that percentage by your income tax to determine the portion applicable to your foreign income and that would determine how much of your foreign tax is allowed as a credit in the current year. Lets say your foreign income is $500 and your total income is $50,000, 1% of your tax would be allowed as a foreign credit. If your income tax was $1,950 then your foreign tax credit could not be more that $19. The amount of your foreign income in the current year is what would limit the foreign tax credit.

[Darby66]

Thomas,

Now I get it!  You've answered my question completely.  Thank you very much.

Darby

[anilkbansal]

I have exactly the same question. I asked this in several forums but no clear answers

[Peyman]

Did I understand correctly, that if I do have a foreign tax credit carryover from filing over 2023, but I did not have foreign income in 2024, I can not use that credit?

[DaveF1006]

Yes, this is correct. You need to report foreign income to take advantage of that credit. 

[Venkykrishnan]

If i had a carryover foreign tax of 10000 in 2023 tax year

my foreign tax in 2024CY is 3000

my gross adj income is 200,000 and my tax liability is $40,000

how do i use my carryover foreign tax?

[DaveF1006]

It depends on the amount of foreign income you earned during the year. The IRS limits the foreign tax credit you can claim to the lesser of the amount of foreign taxes paid or the U.S. tax liability on the foreign income. The excess limit is created when the U.S. taxes on that foreign income are greater than the foreign taxes paid.   Without knowing what your foreign income is for the year, let's assume the following.

Let's assume your foreign income is $50,000 while your total income is $200,000. Your foreign tax is $3000. Here is the amount you may claim for this year based on the following formula. ($3000)($50,000/$200,000)=$750. There is $2250 of excess tax. 

Now since you have a foreign tax carryover from previous year, you may now use an additional $2250 of that carryover to receive the full $3000 this year and this is where the foreign tax carryover comes into play in your return. Since your total US tax liability is more than the $3000 foreign tax credit, you will receive the full amount of the credit this year. If it was less than $3000, it would be limited by the amount of the tax liability and the rest would be reported as a carryover.

@Venkykrishnan