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your situation is exceeding common. somewhat of an oversimplification but if your effective federal tax rate =
1040 line 18 divided by federal taxable income 1040 line15 is less than the foreign taxes ratio to net foreign income is less you only get the federal effective rate times the net foreign income
example somewhat oversimplified
federal income taxes 25000
federal taxable income 200000
effective federal rate 12.5%
gross foreign income 10000
gross foreign taxes 1500
expenses allocated to foreign income (1116 part I line 6) 1000
net foreign income 9000
foreign tax effective rate 16.67%
allowed FTC 12.5% * 9000 = 1125
the 1116 does the calc differently but in the end the mathematic are the same
1116
foreign taxes 1500
net foreign income 9000
federal taxable income 200000
ratio of net foreign income to federal taxable income = 4.5%
this ratio times federal income taxes 4.5% times 25000 = 1125
there is a 1-year carryback. in my experience once a taxpayer starts having a FTC c/o it generally expires. This is because they are paying a higher effective foreign tax rate than their US effective tax rate.
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