carryover of foreign tax credit - why it does not work?

[Fig Wam]

 I have paid foreign taxes in 2017 and 2018. Than was able to use these credit partially - in 2017 and 2018 returns. So I fill out 1116 this year, put all numbers for used and disallowed credits. But it does not change the final return at all. I suspect that the reason is - this year I am getting money back from Uncle Sam, while 2 previous years I owed him.

Is it right, or the reason is somewhere else?

To increase my chances for the carryover next year, should I ignore quarterly estimated taxes?

[rogge1722]

The balance due, refunds or estimated payments have no influence on foreign tax credit.  If you received no credit for TY2019, in Forms Mode, bring up form 1116. Are there amounts in lines 14, 19, 20, 21, 22, and 33?

[Fig Wam]

Amount in line 14 is 0. Lines 19, 20, 21, 22 are empty. In line 33 - 0. What does it mean?

[rogge1722]

We start from the beginning. Is there any amount in line 1a, line 6, and 7?   Do you have any entries in column A?  Is there data in part 2 "foreign taxes paid or accrued"? If so, is there an amount in line 8?

[ThomasM125]

The allowed foreign tax credit for the current year is dependent on the amount of foreign income reported in the current year. If you have no foreign income in the current year, you will not be able to deduct any of the foreign tax credit from the previous year.

[Fig Wam]

thank you very much for the explanation. It implies though that likely I will never be able to get that credit. Which is about 30K. So it would be nice to eventually get it. I paid Taiwan taxes when I worked there - 2017-2018. I got partial credit these years. And I remember, turbotax shown I will be able to use the rest of credit later years - as carryover. Seems, now it is not true anymore?

[KarenJ2]

You can carry it back one year and forward 10 years before it expires.  You cannot use it unless you have foreign income.

If you have any foreign business trips , the foreign workday wages count as foreign income.  If you had a bonus in 2019 that related to your foreign assignment in Taiwan, you can source it by 2018 workdays.  Or if you had any trailing payments in 2019 related to your foreign assignment, the trailing payments can be sourced on 2018 workdays.

[Fig Wam]

Thank you, the sentense "You cannot use it unless you have foreign income" explains it all. So, it seems my $30K gone. Only weak hope is, now I work in US but for Korean owned company. Any way to interpret this as foreign income and thus unlock the carry forward?

[ThomasM125]

You cannot consider income earned in the United States as foreign income, even though the company is located out of the country.

[Fig Wam]

thank you. If my company send me overseas for some business trip, is salary earned during the trip count as "foreign income"?  

[DavidD66]

No, if your US employer sends you overseas on a business trip, that is not considered foreign income.

[Fig Wam]

thank you. Seems I fight for my foreign tax credit as hard as I can. Time to give up. Good bye 30K

[KarenJ2]

Just to clarify, overseas business trips (foreign work days) are considered foreign earned income and you can use your foreign tax credit carryover for any foreign business days.  

If you are an employee and receive compensation for labor or personal services performed both inside and outside the United States, special rules apply in determining the source of the compensation. Compensation (other than certain fringe benefits) is sourced on a time basis. Certain fringe benefits (such as housing and education) are sourced on a geographical basis.

Use a time basis to figure your foreign source compensation (other than the fringe benefits discussed later). Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:

 Number of days you performed services in the foreign country during the year  / Total number of days you performed services during the year 

Publication 514

[Edited 04.01.20 | 8:35 am]

[rlp2451]

A little late to this thread, but is there an IRS reference to this?  Seems unfair to me as I have a substantial amount of tax credits from prior years but sold the stock so I no longer have foreign income.  Can I file amended returns for prior years to recapture the credit?

[ThomasM125]

@rlp2451 I think if you analyze the situation a little, it may make more sense.

You can only take a foreign tax credit to the extent that you are paying US tax on foreign income. So, if only a small portion of your income is from foreign sources, only a small portion of your US tax is from foreign income, so only a small tax credit is allowed in the current year. If you don't have any foreign income in future years, there is no US tax on foreign income in those years, so there should be no foreign tax credit allowed.

For instance, say you have $50,000 of domestic income and $50,000 of foreign income, you can only deduct 50% of your foreign taxes paid, since only half of your US tax is from foreign income.