Ttax has not calculated the utilized/carryover portions of my foreign tax paid credit

[laurag25]

I pay more than $300 in foreign taxes, thus have to report those. When I first created my 2025 return, TTax calculated the utilised portion and the carryover portion to 2026 but did not pick up on previous years' carryovers. So I created a new return that has picked up on the previous years but has not calculated the used/carryover breakdown for the future 2026 return (utilized portion=0, the same as for AMT calculation). How can I remedy this on the new return?

I presume that I cannot just go with the first version of the return (that doesn’t have previous years’ foreign tax credits)?

[DaveF1006 · Accepted solution]

No, that is not correct. You should proceed with the first version that correctly calculated the utilized portion and the carryover into 2026. You just need to enter the previous carryover data that was missed. Follow these steps to restore your carryovers from previous years.

1. Go to Deductions & Credits > Estimates and Other Taxes Paid > Foreign Taxes.
2. Work through the interview until you see the screen: "Do you have any Foreign Tax Credit Carryovers?"
3. Select Yes.
4. You will see a table for years 2015–2024.
5. Enter the amount of carryovers from previous years here.

[laurag25]

Just two follow-up questions:

1. I can only fill in past carryovers back to 2016, I have no access to the 2015 carryover figures. Is this a problem? My tax returns have always been accepted by the IRS with no regard to reporting inconsistencies in the foreign tax paid carryover in section 1116.
2. It looks like I am going to have to amend only my returns of 2023 and 2024 to remedy (a) these historical foreign tax carryovers, but also (b) due to corrections to my foreign tax payments, for foreign income (passive income). Should I go ahead and file my 2025 return now and wait until it is accepted, then file the amended 2023, 2024 returns together? I will owe the IRS very small amounts (under $50) on each of those. (These will eventually affect my 2025 filing.) Or do I file first the amended 2023, wait for acceptance, then file the 2024 amended return? An amended 2023 is going to affect 2024 because of the revision to foreign income, then that will affect my 2025 return. Should I wait to file my 2025 return until these 2023 and 2024 revisions are done? Thanks so much!

[DaveF1006 · Accepted solution]

Foreign tax credits have a 10-year carryforward life. This means any excess credits generated in 2015 expire at the end of 2025.

Prepare your 2023 and 2024 amendments to determine what the carryover amounts are after each year. Then prepare your 2025 return and report those carryover amounts for 2023 and 2024 in the carryover screen on your return. Then immediately file your 2023 and 2024 amendments.

If they process your 2025 return first and see a carryover that doesn't match their old 2024 record, they might send a notice. However, once they process the 1040-Xs, the records will align. 

[laurag25]

Brilliant. Of course! (As an aside, the IRS has never detected inconsistent foreign tax carryover credits over the past 10 years so I would be surprised if they do it now...)

Thank you so much.

[laurag25]

Isn't the best solution here to just go ahead and file the 2025 return, which will be correct according to all previous filings, THEN proceed with the previous years' amended returns, and only then amend my 2025 return to make it now coincide with my amended filings? Can you anticipate a problem with that? (It seems slightly "cleaner" to me as far as 2025 filing is concerned...)

[DaveF1006]

I still stand by my original advice. While your approach might look cleaner, it could lead to problems and increase the chance of an automated IRS notice, since the return wouldn’t be accurate.

Make the amendments first, then file your 2025 tax return using the amounts you calculated. Even though the IRS hasn't "accepted" the 2023/2024 amendments yet, your 2025 return will be factually correct based on the records you are providing.

[laurag25]

This is very interesting! What would be wrong with my filing my 2025 return before I amend the previous years, and have it be consistent with what has been accepted by the IRS up until now for my foreign tax credit carryovers? This way it won't provoke any notice from them.  Then, subsequently, I amend 2023 and wait for that to be accepted, then 2024 and wait for that, and then finally amend the 2025 return to account for both of those?

Why is that not better? (I don't mean to be difficult, I'm just trying to understand how best to be consistent with what's already in the IRS records.)

[DaveF1006]

Essentially, what I said and your suggestion are the same thing, just interpreted differently.  First of all, I suggest preparing the 2022 amendment first to get the final numbers on your 2022 taxes. Then, use a spreadsheet (or something else) to see how the new 2022 numbers change your 2023 and 2024 carryovers.

File 2025 electronically using the "Corrected" 2024 Ending Balance: Even if you haven't mailed the 2022/23 amendments yet, use the accurate numbers on your 2025 return. 

Mail the amended returns together. You might send a letter with the Amendments explaining that you electronically filed a 2025 return that included the correct data that was derived from these amendments. Remember, the electronic 2025 return will be received by the IRS much sooner than your mailed amendments. You are filing your 2025 returns before the amendments arrive at the IRS.

You don't‌ need for the IRS to accept your 2022/2023 amendments before filing 2025. You just need to be accurate. In my previous answer, I suggested you PREPARE your amendments first so that your 2025 electronically-filed return is accurate. Just remember, this electronic file will be received much earlier than your mailed amendments.