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Using 2019 carry over foreign tax credit

Can someone provide some details on how to use a carry-over foreign tax credit in Turbo Tax? (Or even what a  properly completed Form 1116 with only carryover is supposed to look like?)

 

I earned income in Canada in 2019 and paid tax there.  I did a Form 1116 in my 2019 filing and it shows I have credit to carry over to 2020. I have no foreign income in 2020.

 

How do I use this in Turbo Tax?  Do I have to re-enter all of the details of the income (basically fill out the 2019 data in the Form 1116 again? Lines 1a, 3, 5, 6, etc.)  Or can I just use the amount being carried over somehow? 

 

The Turbo Tax interview process seems to expect me to enter a bunch of foreign income, but I don't have any in 2020. 

 

Any guidance on this would be greatly appreciated!

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24 Replies
LinaJ2020
Expert Alumni

Using 2019 carry over foreign tax credit

If you do not have any foreign income in 2020, you don't need to enter it on your 2020 tax return.  As long as you filed the Form 1116 in 2019 when you generated the foreign tax credit and carryforward to future tax year.  Without filing Form 1116, you give up this carryover tax break.

 

Note that when you have a foreign tax credit to claim in the future, you would need to manually enter the carryforward amount on the screen.  TurboTax will not automatically fill in the blank for you. 

 

Per IRS, If you can't claim a credit for the full amount of qualified foreign income taxes you paid or accrued in the year, you're allowed a carryback and/or carryover of the unused foreign income tax, except that no carryback or carryover is allowed for foreign tax on income included under section 951A. You can carry back for one year and then carry forward for 10 years the unused foreign tax. For more information on this topic, see Publication 514, Foreign Tax Credit for Individuals.

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Using 2019 carry over foreign tax credit

Thank you for the response.
I did indeed file form 1116 for 2019.

 

Where is the carry-over amount supposed to be entered for the 2020 return?

 

It seems that Turbo Tax is automatically pulling a carry-over from 2019 into a new form 1116 with only the carry-over that it's trying to file with my 2020 return.   It is calculating the credit as zero on that form, however.

 

This is causing the IRS to reject the return.

 

 

 

LinaJ2020
Expert Alumni

Using 2019 carry over foreign tax credit

To access the foreign tax credit carryover screen in the program, here are the steps below.  You would need to adjust the amount if needed.  

  • After sign into your account, select Pick up where you left off
  • At the right upper corner, in the search box, type in foreign income and Enter 
  • Select Jump to foreign income 
  • Follow prompts
  • On screen, "Foreign Tax Credit Carryovers", enter your 2019 amounts
  • See image below

If you paid foreign taxes, but didn't use TurboTax, you may need to fill in the foreign tax carryover information within TurboTax using your prior year return. If you used TurboTax last year and paid foreign taxes, the amounts for Foreign Taxes and Amount Used are probably already filled in for you. However, in either case, you might need to adjust the prior year entries as carried over in TurboTax, or reported on a return not prepared in TurboTax.

 

The most common reason to adjust these amounts is if your Filing Status has changed. If you filed jointly with another person last year, but not this year, you may need to remove any credits belonging to the person you filed a joint return with last year. If you are filing a joint return this year with a new spouse, you may need to add credits that belong to your spouse.

 

 

 

 

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horbie21
New Member

Using 2019 carry over foreign tax credit

I am having the same problem, rejected twice.  I am using TurboTax 2020 Desktop and have tried to manually enter the data in Form 1116 but it still wont process. 

This is the first year I am using TurboTax, I had an accountant file for me in prior years.  I do have foreign tax credit carryover, however none for 2020.  

I welcome any advice on how to properly file this.

Using 2019 carry over foreign tax credit

To use the foreign tax credit carryforward, follow these steps: 

  1. Click on Federal Taxes > Deductions & Credits [In TT Home & Biz:  Personal > Deductions & Credits > I'll choose what I work on].
  2. Scroll down to the Estimates and Other Taxes Paid section.
  3. Click on the box next to Foreign Taxes
  4. On the Foreign Tax Credit screen, click on the Yes box.
  5. Continue through the interview, entering the requested information. 
  6. You will come to the Carryovers screen.  Click the Yes box.  
  7. Enter your carryover amounts on the next screen -- Foreign Tax Credit Carryovers.  

Since you paid the taxes in 2020, include them as a payment as you go through the Foreign Taxes section.

If you have different categories of income (passive, general, etc.) you will need to add a Foreign Tax Credit Computation Worksheet for each category of income. 

  • As you go through the screens, you will come to the Choose the Income Type screen, which allows you to select the category for the taxes/carryover.  
  • When you have finished entering the first carryover, you will be brought back to the Foreign Tax Credit Summary screen.  Click on the Add a Foreign Tax link to go through the interview for another category of income. 

@horbie21

answer from IreneS

Using 2019 carry over foreign tax credit

I am still have the same issue as the OP and I had already tried the steps suggested.

 

I have $67 carryover from last year BUT NO FOREIGN TAXES PAID IN 2020.  TTax appears to need to have some amount for 2020 before it allows prior years' carryover.   TTax shows the carryover on line 10 of the worksheet but won't prefill any other information since I didn't have any taxes paid in 2020.  I can't manually enter my income on line 18 with overriding the program, so it does not open up Schedule 3 which then carries the tax over to the 1040.  I have contacted TTax phone support and they have escalated the issue as the first person couldn't figure it out either.

 

It also won't allow me to bypass the AMT schedules even though I don't have any AMT, and never have had any.

Using 2019 carry over foreign tax credit

I have not gotten a resolution on this.

 

I have spent the last several weeks trying to find a CPA with experience in this area that would speak with me about it at an hourly rate.  No luck this season - if they are not going to do all of your taxes for you they don't have any interest in consulting right now ...

 

After carefully reading the instructions for Form 1119 on the IRS website, it almost appears to me as if the carryover is only good for offsetting future foreign income and/or taxes.  This would then seem to imply if you don't have any income for 2020, Form 1119 is not required.  I cannot however seem to find ANY guidance ANYWHERE to help clarify this.  I could easily be trying too hard to read between the lines ...

 

I have a large carryover (many thousands), so I'm pretty interested in determining if it may be used to reduce my US tax burden this year or not.  However, I need to get through this filing season, so I'm starting to think I need to play it safe for now, zero out the 1119 related items, see if turbo tax will then allow my return to be successfully filed without a 1119, and then submit an amendment once tax season is over and I can talk to a real accountant.

 

I'm very very frustrated with both the lack of clear, plain English, IRS guidance here, and the poor handling of this situation by Turbo Tax.  At the very least, the program should NOT default to submitting a return to the IRS that is so wrong on a particular form that it's instantly rejected.

 

DaveF1006
Employee Tax Expert

Using 2019 carry over foreign tax credit

it depends. Since, you did not have a Foreign Tax Credit, delete the 1116.  Keep track of your carryovers however and report these whenever you are claiming a foreign tax credit again in future years.. For carryovers, you can go back one year, to claim the carryover and then you have 10 years to claim the remaining carryover losses.

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Using 2019 carry over foreign tax credit

Thanks Dave.

I think that makes sense.  To explicitly double check my understanding here: the way this is supposed to work is that foreign tax credits only can offset future _foreign_ taxes, not just future taxes in general?  (Thus, this is a different type of credit from a "normal" one, for example, an EIT or child tax credit that applies more directly to one's tax liability.)

 

Assuming that's the case, this now all makes sense now!

(Glad I'm an engineer and not a tax professional! Calculus and thermodynamics I can handle - this stuff confuses me to no end! 🙂

Using 2019 carry over foreign tax credit

If we delete Form 1116, will TTax keep track of the carryover for the next ten years?  I'd hate to have to depend on my recollection of a tax credit say, five years from now, let alone attempting to recall how to justify it.

DaveF1006
Employee Tax Expert

Using 2019 carry over foreign tax credit

It depends.  I would keep a record of it just in case because I wouldn't depend on those carryovers to populate each year. Cyberspace is wonderful but sometimes data disappears without a trace.

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Using 2019 carry over foreign tax credit

FWIW -
I figured I would post a final resolution here in case other people stumble on this thread.

I removed Form 1116 (Tools->Delete Form) and was able to file and have the IRS accept the return.

 

The root cause seems to be that TurboTax defaults to populating carryover data and filing an invalid Form 1116; even when it's calculated that you don't actually have a credit.

Using 2019 carry over foreign tax credit

I sold foreign property in 2019. I received foreign tax credit in the tax returns I filed last year(2020) but that was only partial as it limited how much credit I could take. Now I have several thousand dollars of foreign tax credit that I could not take last year and Turbotax is allowing me just about $160. How's that? Based on what you are saying if I don't have enough foreign tax in coming 10 years, then rest of the amount will never be recovered? 

 

Or is this really limitation with TurboTax online? One of the CPAs I contacted said they can see the form where we can manually input balance foreign tax credit but that's available in desktop version of TurboTax and not online. Is that right? If so can I move my taxes without having to redo everything to desktop version and file?

DaveF1006
Employee Tax Expert

Using 2019 carry over foreign tax credit

It depends. this year, it may be limiting your foreign tax credit because you only had $160 in foreign taxes this year or the $160 reduced your tax liability to zero for the year thus limited the amount of credit that can be taken. 

 

The way the foreign tax credit carryover works is if you have foreign taxes this year that can be offset by the carryover. If there is no offset, the remainder will remain until able to be offset by future foreign tax credits.

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