When should you elect to use the Simplified AMT Foreign Tax Credit Limitation? This is my first year claiming FTC and I don't understand how I should answer this.

[TCC1]

I need help. I am using TurboTax for the first time. I have a couple mutual funds with international stocks that have apparently provided some foreign dividends, and box 7 foreign taxes have been paid. Do I use the simplified method or not? I am not sure whether my CPA used the simplified method for last year. The instructions seem to assume that I have been using TurboTax in prior years.

Additionally, if I chose the simplified approach for a deduction, how do I go back into TurboTax and change the election to elect the tax credit?  Thanks!

[TCC1]

Can you simplify this for someone who is a first-time user of TurboTax? How can I know whether I've claimed the tax credit or deduction in the past or the simplified thing? I'm totally lost.

[DaveF1006]

iI depends. I have this Turbo Tax article by Champ pk that says if your foreign income is of general category ( wages, interest income  etc. ) then use the simplified method.  If you have incomes  from many categorys, including trusts, complicated investment portfolios  etc. and / or multi category carry over credits, do not choose simplified method.

If you don't remember using it in the past, use whatever method described above based on your foreign income type.  If it is diversified, then do not use the simplified method. 

[martoro]

ajabon's question above is excellent, but I don't see it answered. Turbotax asks me also to choose simplified or not, but then AMT tax is 0. If I make a selection, have I really chosen?

[DaveF1006]

Yes, if you make a selection, you will need to abide by that selection in ensuing tax seasons. a rule of thumb to follow is if your foreign income is of general category ( wages, interest income  etc. ) then you are correct in using the simplified method.  If you have incomes  from many categories, including trusts, complicated investment portfolios  etc. and / or multi category carry over credits, do not choose simplified method.

[martoro]

DaveF1006, this doesn't really answer the question. When AMT is 0, I cannot find anything in the forms that says I made the selection and what it is.

[martoro]

If I do not choose the simplified method this year, can I choose it in a later year? My understanding is "No", since I can only make the election in the first year I am eligible. Basically, once you choose (in your first year eligible), simplified or not-simplified, you are stuck with it for life. Is this correct? (I am ignoring caveats such as obtaining consent from the IRS; regular folks don't deal with the IRS at such level).

[DaveF1006]

You would need permission form the IRS to change from the simplified election to a general election. To make your decision on which method to use, use the following guidelines in determining which method to choose.

According to the following Turbo Tax link, if your foreign income is of general category ( wages, interest income  etc. ) then you are correct in using the simplified method.  If you have income from multiple categories, including trusts, complicated investment portfolios  etc. and / or multi category carry over credits, do not choose simplified  method. Determine for your self which method to use based off your current income and projections based off of your future foreign income.

[ramac]

Despite using the simplified AMT FTC in prior years, this is the first time I'm being told I cannot file electronically. Is there any workaround to enable me to file electronically. I have foreign taxes of $3,500 from RICs and a private equity LLC.

[decimal]

I am struggling with the same problem . . . never had AMT, but now asked to chose or not the Simplified Limitation. I went back one page from there in Step-by-Step and switched to Forms. The 1116 page looks to be filled in. So I abandoned Step-by-Step for that category at that point. There is no AMT in my list of forms. Why should I make a "permanent" decision before I have to? Supposedly a "flag" stays with the TT imported data from year-to-year.

Last year in one alternative I tried, the Simplified Limitation question was not asked. It did not work for me this year.

nikki20201 on Feb 13, 2021 said in a note that he/she felt there is no special indicator for the IRS whether you chose Simplified or not. It's whether the calculations in the first AMTFTC year indicate a Simplified or Not Simplified method.

[DaveF1006]

As a rule, if you receive foreign income in one category of income such as passive income from interest and dividends, you will select Simplified Election if you expect all future foreign cash flows arising from this activity.  If you expect multiple income streams from other foreign income sources, you will not select Simplified. 

Also, this Turbo Tax post explains that if you select the simplified method, you may not be able to claim a Foreign Tax Carryovers in case if you are unable to claim the full amount of your credit this year or future years.

If you aren't sure what type your future foreign income is, don't choose simplified.

@decimal