I have accumulated foreign tax carryover from previous years, and in 2022, I used most of the accumulated carryover (see below), carrying over $3,277 to 2023. Now the TurboTax gave the error message: Incoming C/O Utilized should not reduce the foreign taxes below 0 and highlighted $126,735 as red. I understand that I overutilized in 2022, but accumulatively I did not (still have $3,277 left). Can you advise? Thanks!
| Foreign Tax Credit Carry Over | General Income Category | ||
| Foreign Tax Paid and Allowed | Credit Utilized | Carry forward | |
| 2013 | 47,136 | 33,749 | 13,387 |
| 2014 | 71,428 | 61,793 | 9,635 |
| 2015 | 83,693 | 67,331 | 16,362 |
| 2016 | 80,102 | 80,102 | - |
| 2017 | 36,379 | 27,009 | 9,370 |
| 2018 | |||
| 2019 | |||
| 2020 | |||
| 2021 | |||
| 2022 | 81,258 | 126,735 | (45,477) |
| Total | 399,996 | 396,719 | 3,277 |
When you import carryovers, they are used up from the oldest to the newest. So 2013,2014, and 2015 the carryovers would be zero after being used. In 2017 you used 6093 and carried over 3277. After you completed your 2022 return you would have 3277 carryover available for 2023.
If you bring up your 2022 form 1116 schedule B, you should see all this on lines 3 thru 8 for each year.
Understood. But the 2022 foreign tax credit was $126,735 while the tax paid was $81,258, utilizing the previous years' carryover, and TurboTax accepted it without warning. But 2023 tax preparation kept giving me a warning that $126,735 is more than $81,258, and that is an error. Can you let me know why? Thanks!
Form 1116 uses the lower of tax liabilities. Here is a link with how the credit is calculated. See here which includes this synopsis:
1) then a ratio is computed of foreign source income (line 1a) to gross income (line 2e) = line 2f
2) 2f is then multiplied by the amount on 3c = line 6
3) line 1a is reduced by line 6 to come up with net foreign income line 7
4) line 7 is divided by taxable income (line 18) to come up with a ratio line 19
5) your FTC is then line 19 multiplied by your tax (line 16) or if smaller the amount of your FTC