Foreign Income Tax paid -- Credit and Deduction

[aptiva4tt17]

One can take the foreign income taxes paid either as a deduction or a tax credit.  If I start out with taking a Credit and have a carryover, do I lose that carryover for good when I switch to a deduction the next year?  e.g. if I have a FTC carryover of $200 as of 12/31/2023  Then I choose to take a deduction for the foreign taxes paid in 2024.  Will I still have that $200 carryover when I switch to FTC in 2026?

[DaveF1006 · Accepted solution]

It depends. When you switch from taking the Foreign Tax Credit (FTC) to claiming a deduction for foreign taxes paid, you cannot use or carry forward any existing FTC carryovers from previous years during the year you opt for the deduction. Essentially, taking the deduction in 2024 “freezes” your FTC carryovers.

However, the carryover isn’t permanently lost. If you go back to claiming the FTC in a future year (like 2026), you can resume using the previously unused carryover. You can still use the $200 you saved from 2023 when you return to the credit method in 2026. You must still be within the 10-year carryover window for FTCs.

[aptiva4tt17]

Does Turbotax keep track of the  FTC carryover after I switch from Credit to Deduction?

I am asking because I did that many years ago.  And when I switch back to Credit (within the 10-yr period, there was no carryover.  I never thought to ask.  I just assume TT is doing it correctly in that the carryover is gone for good.

[DaveF1006]

It depends. ‌It should but not always so it's always wise to keep a copy of these carryovers for future reference.