On my federal return, I'm claiming a $38 foreign tax credit (Form 1040 Line 20).
Oregon publication OR-17 (2023 edition) states the following about subtracting foreign income tax: "Your foreign tax subtraction plus the subtraction for your current federal tax liability plus any additional federal tax paid for a prior year can’t be more than $7,800 ($3,900 if your filing status is married filing separately)."
My subtraction for my current federal tax liability is $0, so this would not appear to be an issue. However, when I input the $38 into TurboTax, it doesn't apply the subtraction to my state return.
Looking more closely at it, it appears that TurboTax is using an outdated rule for determining if the subtraction can be applied. In TY 2019, the guidance in OR-17 was different, stating, "Your foreign tax subtraction plus the subtraction for your current federal tax liability plus any additional federal tax paid for a prior year can’t be more than the 2019 maximum federal tax liability subtraction amount for your filing status shown in Table 7, above." If I applied this logic to my case in 2023, the maximum federal tax liability amount would be $0 (and I therefore couldn't subtract the $38 in foreign tax). This language was changed in 2020 and all subsequent years, however TurboTax still is using the outdated rule, as evidenced by comparing the TurboTax smart worksheet (first image) with the worksheet in the 2023 version of OR-17 (second image):
Line 1 in TurboTax says to enter the maximum amount from an earlier table (which for me is $0); Line 1 in the OR-17 worksheet says to enter $7,800.
TurboTax folks, unless I'm somehow mistaken about this, please fix this issue.
As an aside, another post that appears to be related shows up in search results, but I'm blocked from accessing the contents of it. Link here: https://ttlc.intuit.com/questions/5844571-error-in-tubotax-or-state-if-your-fed-income-tax-subtraction-is-0-due-to-a-high-income-you-can-still-deduct-your-foreign-tax-tt-would-not-let-me-override-on-form
It depends. I checked this in my mock return and it seem to calculate correctly. Currently I see no issue to be fixed. In this scenario, the foreign tax paid is being applied correctly and reduces the taxable income by $38.
@pillarsoftheearth @DaveF1006 , I had this same issue with TT not allowing an Oregon deduction for foreign income tax paid. In my case I figured out from the 2023 Pub OR-17 (pages 72 and 74) that this deduction is phased out based my income being too high. With Federal AGI > $145k the maximum allowed deduction for foreign tax phases down to zero. Maybe this solves your mystery, too?
@LizaJane - Thanks for the reply, but I don't think that's correct. The deduction that's phased out above $145k of income is the federal tax liability subtraction, not the foreign tax subtraction. See the title of Table 9 on page 74 of OR-17:
In Part C of the worksheet (which deals with the foreign income tax subtraction), it makes no reference to Table 9, or any income-related phase-out. The only thing that it calls out as disqualifying someone from subtracting foreign tax is if their total federal tax subtraction is $7,800. However, if you make over $145k, your federal tax subtraction has to be $0, so this doesn't apply.
@DaveF1006 - thanks for clarifying that the default value of Part C, Line 1 can be overridden. However, the issue still remains that the TurboTax worksheet's language is incorrect/doesn't reflect the language in OR-17.
TurboTax Part C Line 1 states "Enter maximum amount from table", which for me would be $0 (assuming the "table" in question is Table 9, shown above) since I make >$145k.
OR-17 Part C Line 1, by contrast, states "Enter $7,800 ($3,900 if your filing status is married filing separately)." - see image below. Please have TurboTax fix the language so that it mirrors what is in OR-17 Part C Line 1.