TT is calculating my Foreign Tax Credit to be $0

[gmangesh]

Hi,

This is for Tax Year 2023 using TurboTax Home & Business Desktop (Mac).

Problem: TurboTax calculates by Foreign Tax Credit to be $0.

Here's my situation:

I received bank interest from some foreign banks. I paid foreign income tax on the bank interest.

The total tax amount is approximately $350.

I chose the option take it as a credit instead of itemized deduction.

- I do not have any other foreign income or foreign taxes
- I have no carryforwards or carrybacks
- I have no expenses against the foreign income
- I have no adjustments to foreign income

- I am married filing jointly

I have entered the bank interest as well as the foreign tax paid via 1099-INT. I did not actually receive any 1099-INT forms - but I entered the information as if I received the forms. I entered the payer name, interest received and, foreign taxes paid in the 1099 form.

I have associated the interest with the correct country and allocated the interest amount received to the tax in the TT screens.

TurboTax Desktop version says I should be able to claim this without filing Form 1116. It then proceeds calculate my tax credit to be $0.

In Forms mode, I do not see either a Schedule 3 or Form 1116 listed in the left navigation bar. However, when I search for Form 1116 I do see that it exists and the calculated amount is 0.

Form 1116 Part III Line 20 is 0 which is then multiplied with the fraction in Line 19 to yield a final amount of $0. I am not sure I understand how Form 1116 works.

I went through the TT screens a few times and sometimes it gives me the following message:

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You've met the requirements for taking the foreign tax credit without filling out Form 1116, but we don't see any foreign tax payments made (or there is no taxable income to apply the foreign tax credit against).

To enter foreign tax payments you must return to the income section of your return to enter foreign taxes paid on interest, dividends, or Schedule K-1 before you continue with the credit.
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I am not sure why the tax credit shows up as $0. Is there some other explanation / solution to claim the full amount foreign tax paid as a credit? I do not believe there should be any kind of "phase-out" for this tax credit as any such phase-out would amount to double taxation.

[rogge1722 · Accepted solution]

Since there are no carryovers and assuming form 1040 line 16 has at least the amount of foreign tax paid, TT should have posted the foreign tax paid on line 20 as you qualify for the exemption. It appears TT does not see the foreign tax paid.

In Forms Mode, bring up the 1099-INT's. Make sure the foreign tax paid appears in box 6. If it is not there then type it in.
Also bring up form 1040 schedule B and verifiy that the income data from the interest payment is present.

[gmangesh]

Hi rogge1722,

Thank you for the pointers.

Form 1040 Line 16 has 0.

I do not have a tax liability other than Self-employment tax. Is this why I don't get the credit? Does the credit not apply against SE tax?

• Schedule B has the interest income, and 
• 1099-INT has the tax in box 6 and country in box 7

Your help is greatly appreciated.

Thanks

[SusanY1]

The 0 on Line 16 is, indeed, why you don't get the credit.  It doesn't apply to self-employment tax as it is only applies like-to-like on income.  

[rogge1722 · Accepted solution]

As line 16 of form 1040 is zero, the exemption cannot be used. It cannot be refunded but it can be carried over: otherwise it is lost.

If you choose to carry it over, 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 credit carried over to 2024.

[gmangesh]

Thanks for the detailed explanation rogge1772. Your help is much appreciated.

[GBAYER]

Part III, line 20 is your taxes owed before the foreign tax credit. Since no taxes are owed, you cannot take the foreign tax credit this year. However, it may be available as a credit in future years against taxes owed.

[BME]

@rogge1722  I had exactly the same FTC problem in preparing my 2023 return.   I had $56 in foreign taxes paid on foreign dividends,.  These foreign taxes and the related divs are on the uploaded 1099-DIV. 

Yet, the interview tells me:

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You've met the requirements for taking the foreign tax credit without filling out Form 1116, but we don't see any foreign tax payments made (or there is no taxable income to apply the foreign tax credit against).

To enter foreign tax payments you must return to the income section of your return to enter foreign taxes paid on interest, dividends, or Schedule K-1 before you continue with the credit.
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I then attempted to help the software by creating a Form 1116 (even though none is required).  That Form accepted the foreign tax amount and the related dividends, but does NOT generate or show an FTC.  I can't use the FTC for 2023, but expected to see it as a carryover into 2024.  Nope, not there. 

I have foreign taxes paid on divs every year, and 2023 is the first year I've had this problem.  Seems many have posted about it.  I've already filed my return, but would like to know how to make the program work correctly, as I don't want to lose the FTC carryovers.

Wondering if you can help?   

[pk]

@BME , from your post it appears that TubroTax has not found the  foreign source income.  Generally 1099-DIV   does no include "foreign source income" just the foreign taxes paid.  You have to go through the back up pages  that came with the 1099-DIV  to find the  foreign source income -- sometimes it is shown exactly  and sometimes  ( if a mutual fund for example )  shown as a percentage.   TurboTax should have asked you for that info.

If you are using the on-line version then i lack knowledge of the screens -- I am familiar with the screens for  windows desktop.

[BME]

@pk ... Thank you for your reply.  I use the Ttax desktop version, too.

Yes, I have the div amounts for which foreign tax was paid from the detail in my 1099-DIV. I entered those div amounts in the 1116 Comp Wks as follows: Part I, Col. A: Row g (Country) = "Various" ... Row c (Int & Divs from Sch B) = 1,337 (total from a supporting statement I entered with the components of such amount from my 1099-DIV detail).

The 1,337 div amount flowed to row g (Ordinary Inc) and row m (Adj Ord Inc) of the 1116 Comp Wks. Such income data then flowed to Form 1116, Pt. I, Col A(i) (Country) = "Various" and 1a (Gross inc from sources within the country) = 1,337. I would think that Turbo Tax could find the income as so entered.
 
In Form 1116 Pt II, Foreign Taxes Paid or Accrued, (j) "Paid" is checked, and the col. (l) shows "1099 taxes) and col (m)(Divs) = the 65 in foreign taxes paid.

For some reason, though, in Form 1116, ln 35, the amount of the calculated FTC is 0.  Although I can't utilize the credit in my 2023 taxable year, I don't understand why the program isn't generating a carryover to 2024.

I'd like to learn how to enter this such that the software works to show the FTC carryover, as I could save a copy of the file with that carryover (my tax for 2023 won't change).  If I can't learn how to do that, not sure what to do.  Perhaps just put in a note to self for 2024 to add the FTC credit carryover from 2023 if possible, perhaps through an override entry.  I generally don't like to do that, though, as I don't want to screw up my ability to e-file or mess anything else up.  Appreciate your thoughts.     

[gmangesh]

I too have already filed my 2023 returns without "recording" that I want to carry it forward. So now I am not sure if I have lost my ability to claim the carry-forward when I file TY2024 returns next year, or whether I can add the carry-forward manually next year.

[pk]

@BME ,    First,  when you have  "Un-allowed" foreign tax credit computed on form 1116, TurboTax will ask if you want to carry any back and how much  ( if I remember right) , the rest would be left in the "Carry-Forward" bucket.  When you prepare  your   next  year return using Turbo, the carry forward amount is recognized  ( on federal carry over worksheet) and applied as foreign taxes paid.  You don't need to do anything special for this.

Second,  given the figures you quoted and unless you had  FTC carry-over,  your total foreign source  income of US$1337, could not have attracted  more  the safe harbor  amount of foreign taxes paid ( US$600 for MFJ).  Thus you should have been able to avoid  the form 1116 and its limitations .

I suspect the  zero allowable FTC is because of the ratio of  foreign income to world income is miniscule.

pk

[pk]

@gmangesh  does my response above to @BME  cover  your situation or do you need more ?  If yes, please share some more details of your situation --- approx. or  stand in figures for  -- world income, foreign source income, Foreign Taxes paid on Foreign source , filing status  and if the FTC is from 1099-DIV -- please 

pk

[BME]

@pk Thank you, I would have expected the program to behave just as you describe, but it didn't during my prep.  Not  sure why, or what to do about it going forward. 

I've done this foreign tax entry for years in Turbotax desktop ... even years when I was in a refund position and had an FTC carryover.  Still don't understand why Ttax failed to compute the FTC or its carryover.  To answer your points:

1.  Ttax never asked me if I wanted to carry over my FTC, as a carryback or a carryforward.  Perhaps because the program, erroneously as far as I can tell, computed the FTC to be 0.

2.  Agree that I should not have to use Form 1116 for the $56 of foreign tax I paid.  I only went down the Form 1116 rabbit hole because Ttax told me it did not "see" or recognize my foreign tax payment or the related div income.  I did my best to "reveal" those figures to the program, by manually entering them on Form 1116.  That did not work. 

3.  I get that my $56 in foreign taxes probably wouldn't generate an FTC when the regular "full blown" FTC limitation ratios of Form 1116 are applied -- I haven't delved into this part, as I should be in the Form 1116 exception safe harbor -- but I don't know how else other than on a Form 1116 to "reveal" the foreign taxes and related div income that the program kept telling me it could not see.  Perhaps by using Form 1116, I misled the program into concluding that I did not qualify for the "no Form 1116 needed" safe harbor?  No clue.    

Tell me, please, if possible:  Is there some OTHER way I should have entered the foreign taxes & related divs, such that the program would, in fact, "see" the pertinent figures, apply the pertinent safe harbor, and generate the correct FTC and related carryover?

Also, if this really is just a bug in the software, then, getting practical ... from a Ttax standpoint, how would you handle 2024 prep if you had to include an FTC carryover that the program missed in the prior year?    

Thanks so much.  

[gmangesh]

@pk thanks for offering to help. I am seeing TT behavior similar to what @BME has reported.

My situation:

1. I had about $350 foreign taxes paid that I reported on 1099-INT bank interest (though bank never sent an actual 1099-INT, that is how I reported it)

2. I am MFJ so TT told me I can claim $350 without needing 1116

3. However, for me, Form 1040 Line 16 has $0 since I do not have a tax liability. So then TT computed my FTC to be 0.

TT did NOT offer to carry-forward the $350 foreign interest to my 2024 return. At this point I have already filed my TY2023 returns without Form 1116 and with $0 in FTC.

So I have the same questions as @BME , viz.

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Tell me, please, if possible:  Is there some OTHER way I should have entered the foreign taxes & related interest, such that the program would, in fact, "see" the pertinent figures, apply the pertinent safe harbor, and generate the correct FTC and related carryover?

Also, if this really is just a bug in the software, then, getting practical ... from a Ttax standpoint, how would you handle 2024 prep if you had to include an FTC carryover that the program missed in the prior year?

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