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Foreign Tax Carryovers

The pdf version of my Foreign Tax Credit Computation work sheet of Turbo Tax shows below:

1) Foreign Tax Credit Carryovers from 2022

    Regular Tax:

  • 2022: Foreign Taxes=748, Utilized=250, Carryover=498

    Alternative Minimum Tax

  • 2022: Alternative Minimum Tax: Foreign Taxes=748, Utilized=0, Carryover=748

2)Foreign Tax Credit Carryovers to 2024

    Regular Tax

  • 2022: Foreign Taxes=748, Utilized=330, Carryover=418
  • 2023:Foreign Taxes=469, Utilized=469, Carryover=0

     Alternative Minimum Tax

  • 2022: Foreign Taxes=748, Utilized=0, Carryover=748
  • 2023:Foreign Taxes=469, Utilized=0, Carryover=469

 

Please help me understand why the Utilized (250 vs 330) and Carryover (498 vs 418) are different for 2022

How is the 330 computed in this form?

 

Thank you.

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1 Reply
DaveF1006
Employee Tax Expert

Foreign Tax Carryovers

It depends. let me give you a synopsis on how the foreign tax credit works.

 

According to the IRS, Your foreign tax credit cannot be more than your total U.S. tax liability multiplied by a fraction. The numerator of the fraction is your taxable income from sources outside the United States. The denominator is your total taxable income from U.S. and foreign sources. Here is an example on how this works.

 

If your tax liability on Line 24 of your 1040 is $5000, your foreign income is $11,728, and your total income, foreign and US income, is $50,000. The foreign tax that can be claimed for this year is ($5000)($11,728/$50,000)=$1173. This is the maximum amount of credit that can be claimed this year. Any excess foreign tax credit can either be carried back to a previous year or carried forward for 10 years to offset any past or future foreign tax credit paid on foreign income. So if you had a $5000 credit, $1173 will be credited this year while $3827 will be a carryback or carryforward, or both.

 

In you case, even though the foreign tax credit is the same but your US tax liability may have been different in 2022 and 2023. You can verify this by looking at Line 18 on your 1040 for 2022 and 2023. If these amounts are different, then this explains why the utilized and carryover amounts are different for each year.


 

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