Election To Claim the Foreign Tax Credit Without Filing Form 1116

[PN10]

In 2020, I paid a total of $55 in Foreign Tax, all from “passive category income”. This amount was reported to me on my brokerage 1099 and was reported to a RIC in TT. After filling out the ‘Foreign Taxes’ section in TT, TT populated form 1116 and based upon the calculation there determined that I was only entitled to a credit of $15.

The instructions to form 1116 state: You may be able to claim the foreign tax credit without filing Form 1116. By making this election, the foreign tax credit limitation (lines 15 through 21 of the form) won't apply to you. This election is available only if you meet all of the following conditions. (I meet all the conditions)

Note: I have a carryover from prior years for “general category income” and TT also shows carryovers related to AMT.

But for this year I want to skip the form 1116 and just take the 55 credit for the taxes I paid in 2020, but TT won’t let me do it.

[rogge1722]

Is line 16 in form 1040 at least $55 so that you can make use of the full credit on line 20?

[PN10]

Yes, 1040 line 16 'Tax' is well over $55.

And I should add that I've filed my 2020 tax return. But I've since realized that this doesn't make sense.

[rogge1722 · Accepted solution]

In addition to the requirements stated in the form 1116 instructions to qualify for the exemption to be implemented, TT has the following additional requirements:

The program will automatically make this election if all of the following are true:

* The total sum of foreign taxes entered on Forms 1099-INT, 1099-DIV, the Schedule K-1 Worksheets, and any manual entries made on the 1116 Computation Worksheet lines 8p and 8r1 doesn't exceed the $300/$600 limit.
* If there is a foreign tax amount on a Schedule K-1 Worksheet, the category of income selected is "passive category income".
* If a category of income box is checked on any Form 1116, the category checked is "passive category income".
* If a category of income box is checked on any Form 1116 Computation Worksheet, the category checked is "passive category income".
* There is no amount entered on the Federal Information Worksheet for "Excludable income from Puerto Rico".
* There is no foreign tax credit carryover from another year that can claimed in this year.

In your case, the f1116 computation worksheet category is general category but TT makes no distinction.  If there are any carryovers in any category, TT will not use the exemption.

[PN10]

rogge1722 regarding your statement – ‘In your case, the f1116 computation worksheet category is general category but TT makes no distinction.  If there are any carryovers in any category, TT will not use the exemption.’

My situation may not be the norm - a few years ago, I owned shares in an MLP (SEP – Spectra Energy Partners LP) that had operations in Canada. There was a forced buyout of my shares, but I continue to have a carryover of $28 for Foreign Tax Credit classified as Copy 2-General Category Income.

The carryover remains available for ten years, however, this was a one time investment and I do not plan to engage in any activity going forward that will generate Copy 2-General Category Income and I am not aware of any way to use this credit. In 2020, to simplify my taxes, I reduced my investments in foreign funds to keep foreign taxes paid well below the $300/$600 limit. My goal is to not have to file IRS form 1116.