Foreign tax carryover generated in current tax year

[astral101]

How do I apply a foreign tax carryover generated in the previous tax year?

Situation: Turbotax says that my current foreign tax credit is $6975 but I have $5500 from the previous year as a carryover. Is there a way I can apply part of to this year's taxes so that I can lower my current tax amount due? 

[tagteam]

I will page Champ @pk. Please check back later.

[pk]

@astral101  Please tell me more on the situation --- which country foreign source income, type of income ( as noted on form 1116), is your carried over foreign tax credit of the same type etc.   Also a rough estimate of your world  income vs Foreign source income for the year.

Generally TurboTax should automatically draw down foreign tax credit if there is insufficient foreign taxes  available.   But note what it is trying to do --- the allowable foreign tax credit for the year is lower of   actual foreign taxes paid OR US taxes on the same  doubly taxed income.

Please answer my questions and I will circle back after trying to simulate your situation ( if not obvious from your answers ).

[astral101]

Income country: Canada (wages; working remotely for a Canadian company while residing in the U.S.). I already paid the Canadian government almost $9,000 in taxes on approximately 51k. I cannot believe I am being taxed twice somehow. 

Apart from the 51K of Canadian income, there's approximately 26k income for a married couple filing jointly.

[astral101]

Any update?

[pk]

@astral101 , sorry for the delay in responding.

(1)  Your question about Foreign Tax Carried  --- please look at  line 9, 10 and 11.  This should all the Foreign Taxes paid/accrued this year and the Carry Back / Forward available to you.      After adjustments for HTKO the final aggregated result is on line 14.  This is max available for the current year from all  categories

(2)  Now  on lines 15, 16, 17  and 18 is where you are creating the ratio between  Foreign Source Income and world income. Look at  line 19.   Form your figures  I would expect a  ratio of 51K / 77K = 0.66623 roughly.

(c)  Next your total US tax liability is allocated to Foreign Source income ( included in your total income ) on line 21 and finally adjusted to line 23.

(3)  Now the 2nd part of limitation come into play -- it is the lesser of total Foreign Tax credit ( including carry overs/backs )  OR allocated US tax liability on the  same income.

And no I cannot agree that you are being doubly taxed.  However I do agree, that depending on the tax rates in the USA and  the foreign country you  may not get   allowable  Foreign Tax Credit  at 100% of the amounts paid / accrued.

Does this make sense.

 My source for this position is Section 911,  IRS instructions for form  1116 and TurboTax internal  form 1116 document ( coding help ).

I understand that you still  are reluctant to follow my suggestion on how to enter your foreign source income ,  but of course that is choice and your to defend in case of an audit.

Is there more I can do for you /