Foreign Tax Credit Carryover Not Being Used?

[Stephen_Sr]

Hello,

I have investments in international/foreign mutual funds. Each year these funds pay taxes on foreign income and report my share back on form 1099-div. So in effect I have paid this tax on this foreign income through the mutual fund.

All of this gets reported/recorded on form 1116. Reviewing the 2019 form 1116 this year I have noticed that it seems that all of these foreign taxes paid are just being carried-over and never get applied to my tax bill.

Can anyone explain why this is happening and/or how to fix it?

Thanks,

Steve

[DaveF1006]

It depends. Since Foreign Tax Credits are non-refundable credits, these will be used to reduce your tax liability to zero. Any portion of the credit not used in the reduction is carried over into the next year until they are used up or expire.

[Stephen_Sr]

That's just it... my tax liability is NOT being reduced to zero and the credit keeps piling up year over year. Any other ideas?

[LinaJ2020]

The program will not carryforward your unused foreign tax credit automatically.  You will have to manually enter the unused carryforward amounts in the program.  Here are the steps:

In TurboTax online,

• Open up your TurboTax account and select Pick up where you left off
• At the right upper corner, in the search box, type in "foreign tax credit" and Enter
• Select Jump to foreign tax credit
• Follow prompts 
• On screen, "Foreign Tax Credit Carryovers", enter the carryforward amount on one of the screens.  See image.

You should see the credit on line 31 of  your Form 1040, carried over from Schedule 3. 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.

[Stephen_Sr]

Hello,

I think that your first statement is in error, at least for the TT desktop versions. Here is what TT generated for my 2019 return:

So it would appear that TT desktop is keeping track of the carryovers. I would hope that the online versions would do the same.

On my 2019 1040 there is NO line 31. Form 1040 stops at line 24. On schedule 3 line 7 shows $332.

So I guess my question is why is my foreign tax credit piling up and not being completely used? For 2015 and 2017 I might have had a zero tax liability but in the other years I am pretty sure that I wrote a check to the IRS.

[Stephen_Sr]

Well, I had some more time to plow through my 2019 return.

It does appear that TT correctly carry forwarded the amount from the worksheet ($1970) and entered it on line 10 of form 1116. So 2019 appears to be correct.

It would also appear that not all of the tax paid is eligible for a credit in a given year so the rest ends up getting carried over.

So now my remaining question is where do I find the amount that gets carried over to my 2020 return? I will need this when filling out my 2020 return.

Thanks,

Steve

[ReneeM7122]

The amount that gets carried over to my 2020 return is found on form 1116 line 10.

[Stephen_Sr]

Hello,

I don't think so... According to what I see on my 2019 return line 10 is what got carried over FROM 2018 and NOT what gets carried over TO 2020. Anyone have any other ideas?