Foreign Tax Credit

[dstautz1]

I have $560 of foreign taxes paid on two 1099Divs. I went through the foreign taxes paid section under Deductions and Credits. It asked if this was the only foreign taxes and if I had no foreign tax paid carryovers. I checked both boxes as directed. The next screen told me I did not need to file Form 1116 because I was within the MFJ exemption. All seemed in order until I hit continue and it then told me my foreign tax credit was $199, not the $560.

The Schedule 3, line 1 showed the $199. I went to look at forms and no Form 1116 (Copy1) shows. Therefore I cannot see any calculation of why my credit went from $560 to $199. This section also didn't ask me for the amount of foreign dividends on my 1099Divs. I am at a loss on this at this point. Does anyone have this issue or any suggestions?

[pk]

@dstautz1  while I do not have the details of your situation ( if you could provide more details either here in this thread or PM -- just NO PII -- Personally Identifiable Information), the foreign tax credit is a Non-Refundable Credit.   Thus all it can do is to reduce your tax liability  i.e.  if your tax liability before applying the FT is US$199, then only US$199 of the available  credit will be used ( and without form 1116, the rest is lost ).  Form 1116 applies a further limit -- it is lesser of actual amount paid and that imposed  by the US using an allocation process  substantially based on ratio of Foreign source income to World income.

Does this explain your issue ?   Is there more I can do for you ?

[Mike9241]

The option is not to file Form 1116 if the FTC is under $600 MFJ. On the 1099-DIV you enter only the FTC.

You do not complete or file the 1116. If you do, then the $600 exclusion no longer applies. TurboTax will compute what is allowable, which is basically your foreign income as adjusted on the 1116 divided by your taxable income times the  tax on 1040 line 16

[pk]

@dstautz1  agreeing with my colleague @Mike9241  on the path forward  i.e. try to use the  safe harbor ( the non-form 1116 and its limitations ), just wanted to add  that TurboTax uses  a quite fair but complicated method  of US tax  allocation  between the  domestic and the foreign source incomes.  It uses the taxable income  ratio  --- for each income source it allocates the deductions applicable to that income.  Thus if you use itemized deduction, Turbo  allocates itemized deduction to the world income and to each of the foreign source incomes based on a  ratio  foreign source income to world income and then uses  the resultant   "adjusted gross income " for each source to world income AGI  ( line 11 of  form 1040 ) to allocate the  US tax to each income  source.  It is this  tax that is eligible for foreign tax credit ( i.e. the lesser of Foreign tax paid and  this allocated US tax ).

I am aware that for most tax payers this detail is immaterial but if one is interested in the actual mechanics of  ....