TurboTax Desktop Won't Generate Form 1116

[careful_dragonfruit]

Hi - I paid $2K+ foreign taxes on a rental property in Canada but don't owe any US taxes given depreciation expense brings gross income negative on the rental property. That said, I should be able to carryforward the $2K into future years but TurboTax Desktop Premier won't allow me to create Form 1116 to track the carryover. I was able to generate the report in 2024 version despite having the same situation so is this some sort of bug in the 2025 version?

[pk]

@careful_dragonfruit , pardon my slow-uptake.

(a) Are you saying that you rent out a property in Canada and paid taxes  on income of US$2000 ?

(b) Or are you saying that while you reported this rental income on Schedule-E with your US return (form 1040),  and tried to claim Foreign Tax Credit for US$2000 paid to Canada, there was no form 1116  opened because  of  zero tax liability  even with the Schedule-E income ---- FTC being limited by being Non-Refundable Credit?

 Please could you explain the situation --please

[careful_dragonfruit]

Hi - I paid $2K+ in foreign taxes to the Canadian government for a rental property I have in Canada. Gross income is higher than that- Canada has a withholding tax of 20-25% so gross income would be higher. I don't show depreciation expense in Canada; however the US requires depreciation to be recognized per a 30 year life for the property. As a result, my US net income on the property is negative so I have no US tax liability. TurboTax seems to interpret this scenario as if I don't need a Form 1116 but I think I do to show the $2K in foreign taxes paid being carried over for use in future years. Let me know if that helps clarify?

[pk]

@careful_dragonfruit , the availability of Foreign Tax Credit is based on "Double Taxation".  In your particular case, your foreign source income is negative and therefore US tax thereon is zero.  The fact that Canada under its tax laws taxes you does not change the fact that there is NO double taxation.  Thus there is no "foreign tax" to be dealt with here .  Please see  the article XXIV of the  tax treaty and the Technical Explanation thereof -->

CANADAWEB.PDF   

canatech.pdf

and   Technical Explanation, Protocol amending U.S.-Canada Income Tax Convention, signed 21 Sept. 2007

Is there more I can do for you ?

[careful_dragonfruit]

Thank you for explaining why a Form 1116 isn't generated by the software; however, I should be able to still submit a Form 1116 to carry forward my foreign tax credits for future use, correct? And TurboTax doesn't seem to allow me to do that. For clarity, I had the same situation in 2024 and the 2024 version of the TurboTax software did provide a Form 1116 anyways. This appears to be known bug with the 2025 version of TurboTax, which is unfortunate.

[MarilynG1]

The Foreign Tax Credit Computation Worksheet should show your carryovers in the table near the bottom of the form.  If it does not, you can enter them directly.  The worksheet is documentation from year to year regarding Carryovers for the years a Form 1116 is not required to be filed.   The IRS does not track your Foreign Tax Credit Carryover amounts.

@careful_dragonfruit 

[careful_dragonfruit]

Thank you for the clarification. The form is definitely created if I am claiming a credit for double taxed income. That said, do I just use TurboTax to track the carryovers until I sell my property and the I use the credits at that stage?

[AmyC]

You need to download / save a copy of your return with all worksheets each year when you finish. A new loss should generate the 1116 and the IRS allows that loss for 10 years. It can be used when your property is profitable and /or you sell it.