Foreign Tax Credit

[gsawyer799]

I believe I qualify to report foreign tax paid as shown on 1099-DIV without Form 1116. However, I have been unable to enter the amount directly as indicated in the instructions.  TT has calculated that I should itemize deductions for a lower tax bill and is not including the foreign tax as a deduction...I indicated in the interview that I wanted to take the credit. How to determine if 1116 is required and how to link the form to Form 1040 to show the credit if necessary?

[rogge1722]

If  the foreign tax paid is no more than $300 if single or $600 (MFJ) then TT will automatically insert the amount into schedule 3 line 1 and then to the 1040 line 20.  In order to make full use of the credit, line 16 would have to be at least $300 (Single) or $600(MFJ) to make full use of the credit. If line 16 is zero, then no credit is available. This situation does not require filling out f1116.  Even though you are going thru the f1116 interview, no f1116 is actually generated.  If you go to the last screen you were in and then  click on "show the relevant form",  at the bottom, you should only see schedule 3 with line 1 highlighted with the exemption amount entered.

[DaveF1006]

gsawyer799. Be sure you enter the foreign tax paid in Box 7 of the 1099-DIV form. To get to box 7, you must check  My form has info in other boxes (this is uncommon). If the amount is $300 ($600MFJ) or less, you do not need a 1116 and this will post directly in Schedule 3 line 1 and be reflected in Line 20 of the 1040.

If it is more than $300 ($600 MFJ), you need to follow these steps.

1. After you entered the amount of foreign tax paid in the 1099-DIV, followup screens will ask the amount of foreign dividend income that this tax was based from.
2. Here you will enter that income under Foreign dividends received and the type of income it is, RIC or other.
3. Then it will ask the foreign country. Now the basis is set for you to claim the credit.
4. Next go to Federal>deductions and credits>deductions and credits>estimate and other taxes paid>Foreign Tax Credit>start or revisit
5. Go ahead and complete the sections that follow. Since you already recorded your income and taxes paid, it is just a matter of navigating through this section just to generate your 1116. 
6. As rogge1722 said, you do not need to do this if the amount is less than $300 but In case if it was more, i wanted to give you the correct method to report. 

[nomoreties76]

Thank you rogge1722.

If Form 1040, Line 16 is "zero" (TY 2020) can the existing Foreign Tax Credit be carried-over and applied to the following tax year (TY 2021)?

[rogge1722]

If the exemption cannot be used in whole or in part, by default the unused portion will be lost.  The workaround is to elect not to use the exemption.  Here is the technique.

Go thru the foreign tax credit interview.  Then open the Federal Information Worksheet .  Scroll down to Part 6. The fifth paragraph is labeled  “Foreign Tax Credit (Form 1116).  Checkmark the box to file form 1116.

 Then bring up the foreign tax credit comp. worksheet. Scroll down to the bottom to the carryover section and you should see the unused  credit carried over to 2021.

[nomoreties76]

Thank you once again rogge1722.

[ajaybuti]

I have less than $300 in foreign taxes paid in 2021 but TT 2022 continues to use Form 1116 and calculates a number which is significantly lower than what was deducted and posts the same on Schedule 3. It was the same story for the last 2 years. Is it because of the carry over from previous years?

[rogge1722]

If you qualify for the exemption but have carryovers, TT by default will not use the exemption. If after the calculations the credit on form 1116 line 35 is less than the exemption, you can elect to use the exemption in lieu of the calculation.

To do this, in Forms Mode, bring up the form 1116 worksheet. Scroll down to the header "Foreign Tax Credit Carryovers". At the bottom of the box for "Carryovers from 2020” in the cell to the right of "Carryover to 2021", put the pointer over the cell and right click. On the popup box select click on "Override" and delete the entry. After that the cell will be yellow and blank. Now if you check form 1116 line 35, it will now display the exemption amount and to the left will be the statement "Do Not File." You are done.

[ajaybuti]

Thanks for the prompt response. Nothing happens when I right click on the cell next to Carry Over to 2021. It has a number and right click does not bring up any box :(

[rogge1722]

Are you using the desktop for Windows?

[ajaybuti]

Yes I am - Mac

[rogge1722]

For some unknown reason, I recall from prior postings, MAC's don't always respond to the right click command.

[ajaybuti]

So what are my options? Get TT Windows Software and find a Windows PC? I am sure that your tech team can fix this quickly. Help please.

[ajaybuti]

Dialog box opens up when I right click on an empty cell. So Right Click functionality is working but does nothing if a cell is populated in the worksheet.

[rogge1722]

It is apparently some quirk with MAC's.  I would think TT is aware of this but apparently they have not fixed it.