Foreign tax credit carryover use

[sfviolins]

Hi!

I moved back to the US in 2017. If I have carried over foreign passive income credit on foreign taxes from an earlier year and I’m taxed this year by the IRS on foreign capital gains that I was not taxed on by the source country (Canada) due to a tax treaty, can I claim the carried over credit amount? Basically, am I allowed to fill out a form 1116 that has a $0 amount in Part II?

[rogge1722]

Yes, you can fill out a form 1116.  From the foreign income, it will calculate the foreign tax credit limit and draw from the carryovers for your foreign tax credit.

[sfviolins]

Hi!

So this part of Publication 514:

• You cannot claim a credit for unused foreign taxes in a year to which you carry them unless you also claim a credit for foreign taxes actually paid or accrued in that year.

Doesn’t mean I’m not allowed to carryover credit to a year that I don’t pay foreign tax, even though I have foreign income?

[rogge1722]

That restriction apparently is new as I was not aware of it.  I’ve seen in the past where several users had the same situation as yours; namely foreign income, carryovers, but no foreign tax paid for the current year.  The TT interview will still generate a complete f1116 with foreign tax credit even though there is no foreign tax paid for the current year as long as there are carryovers available. 

It seems odd that if you had opened up a Canadian bank account paying a paltry interest amount  with only a few dollars of foreign taxes paid for the current year, that would have cleared the decks for any amount of capital gains and all the carryovers available.

Any carryovers not used for the current year can be carried forward to next year.  Be aware that any portion over 10 years old is lost.

[sfviolins]

I totally agree, so maybe I am misunderstanding that sentence. It’s contained within this section below, does that change anything in your opinion?:

Taxes All Credited or All Deducted

In a given year, you must either claim a credit for all foreign taxes that qualify for the credit or claim a deduction for all of them. This rule is applied with the carryback and carryover procedure, as follows.

• You cannot claim a credit carryback or carryover from a year in which you deducted qualified foreign taxes.

• You cannot deduct unused foreign taxes in any year to which you carry them, even if you deduct qualified foreign taxes actually paid in that year.

• You cannot claim a credit for unused foreign taxes in a year to which you carry them unless you also claim a credit for foreign taxes actually paid or accrued in that year.

[rogge1722]

The additional statements address using deductions or credits and does not add anything new.

[sfviolins]

So do you think that the statement’s somehow contained to something involving choosing the deduction vs. the credit or that it’s saying I can’t claim carryover in a year with no foreign tax?

[rogge1722]

My interpretation is for TY2019, carryovers cannot be used as a deduction in TY2019.  They can be used as a credit provided that a credit is used for foreign taxes paid in TY2019.