turbotax icon
cancel
Showing results for 
Search instead for 
Did you mean: 
turbotax icon
cancel
Showing results for 
Search instead for 
Did you mean: 
Close icon
Do you have a TurboTax Online account?

We'll help you get started or pick up where you left off.

Foreign Tax credit

Last year (2022) I paid equivalent of $14,892 in foreign taxes after selling my home. I used $4,967 in foreign Tax credit that TurboTax told me is maximum allowed. I still have $9,925 worth of credit available. This year (2023) I paid $2,368 in foreign taxes on interest income I received from my bank. Nothing fancy. TurboTax calculated $365 in foreign tax credit, and I can't use my last year's leftover foreign tax credit! 

I am a US citizen and I do reside and work in the US.  I have been struggling all night to figure it out. Any help will be greatly appreciated.

Connect with an expert
x
Do you have an Intuit account?

Do you have an Intuit account?

You'll need to sign in or create an account to connect with an expert.

3 Replies
jtax
Level 10

Foreign Tax credit

This could be correct. It is impossible for us to know exactly because we don't have access to your return.

 

What is usually happening is something like this.

 

First, the US gives you a foreign tax credit (FTC) to offset the US tax on foreign income. It does not give you the credit so that you get back the foreign tax you paid. This is subtly different. Because US tax rates are so much lower than most other countries, this usually means the best case is that you won't pay US tax (double tax) but will still pay the foreign tax.

 

Second, the max FTC allowed is this. It is done separately by category of income (see the 1116 instructions):

 

 Max FTC = foreign-tax paid * foreign-sourced income / worldwide income

 

Unless you live overseas, commonly your foreign source income is a small fraction of your US income and not much foreign tax is allowed. (Living overseas without major US-source income and the ratio is closer to 100%).

 

In your case it might be that the $5k of FTC offset your entire US capital gains tax on the foreign home sale. In that case the FTC did it's job. It's not intended to give you an additional $10k of credit against US sourced income, just not cause you to be taxed twice. 

 

I would suggest you review the 2022 and 2023 form 1116s (and worksheets) to see how it works and if it looks right. It is pretty complicated. You might also want to hire a professional (CPA, enrolled agent, or tax attorney) who works with the FTC every day (not twice a year) for a brief consultation. In that case just file an extension (paying whatever you owe, if anything) and wait until after the 15th to find someone.

 

 

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

Foreign Tax credit

Mr. jTax,

Thanks for your prompt reply.  It is disappointing that I can't use the foreign tax carryover amount, almost $10K, in its entirety. Your explanation pointing to tax rate disparities among nations does make sense.

jtax
Level 10

Foreign Tax credit

@HenryNaidu glad to help. Again, without reviewing your return I cannot say that is what is going on in your case, but it is common.

 

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
message box icon

Get more help

Ask questions and learn more about your taxes and finances.

Post your Question
Manage cookies