Form 1116 is not generated even though my tax situation requires it

[dextertexter]

Hi,

My wife and I file jointly and have a passive foreign rental income for which we don't have any qualified payee statements (e.g., 1099-INT, 1099-DIV, or Schedule K-1), and we paid a foreign tax of $586 in 2024. To our understanding, we need to file Form 1116, and actually, TurboTax keeps telling us that we need to do so, but TurboTax does NOT generate it at all. However, it starts generating it when we give it a try to specify a foreign tax of $601 or more. We understand that  $600 is one threshold determining whether to generate Form 1116, but that's not a sole criterion, and we must file Form 1116 when we don't have any qualified payee statements, even if the foreign tax paid is less than or equal to $600 as in the IRS instruction here. 

Note that both the Mac and Windows version has the same issue. Specifically, in the form mode, Form 1116 is marked as "FORM NOT REQUIRED TO BE FILED", though the form itself seems correct.

Here is more detailed but hypothetical information for illustration purposes in case this helps:

• Filing Status: Married Filing Jointly
• Net Income: $50,000, 100% of which is a passive income from a foreign rental property (to simplify our explanation)
• Foreign Tax Paid: $586 in 2024 for the country where the rental property is located, and thanks to the tax treaty, we can claim it as a foreign tax credit.
• Expected Behavior: Subtract $586 from the tax of $2,080 (10% of $20,800), attach Schedule 3, and justify the credit amount on Form 1116.
• The issue: The $586 credit is applied, and Schedule 3 is attached, but Form 1116 is not generated.

Steps to reproduce the issue:

1. Fill in the personal information so the filing status is "Married Filing Jointly".
2. In the "Wages & Income part", choose "I'll choose what I work on" and go to "Rental Properties and Royalties". Then, in the Property Profile section, specify that the property is outside the US and add the rental income of $50,000 as "Other income not on a 1099-MISC or 1099-K, and income from a barter or exchange". Let's not claim any expenses to simplify the discussion, so the net income is $50,000.
3. Go to the "Deductions & Credits" part, choose "I'll choose what I work on", and choose "Foreign Taxes" under "Estimates and Other Taxes Paid".
4. "Yes" to "Did you pay foreign taxes in 2024 or have credits to use from a prior year?"
5. "Yes" to "Have you already reported all of your foreign income and, if applicable, foreign taxes paid on interest, dividends, or Schedule K-1?"
6. Choose "None of these apply". Make sure that you do NOT choose "You have no more foreign taxes to enter other than those you entered on a 1099-DIV, 1099-INT, 1099-OID or a Schedule K-1"
7. TurboTax says: "You need to complete Form 1116 if you want to claim the foreign tax credit"
8. Choose "Take a Credit" when asked whether you want the Deduction or the Credit.
9. Keep going, choose "Passive Income" when it asks for a category, and fill out the Form 1116 Worksheet (specify the country and foreign income amount, which is $50,000, with zero expenses and losses). Choose "No, I have foreign taxes paid on rental, royalty, or other income(including wages)" when it asks: "Does your total taxes paid only include taxes reported on a Form 1099-INT or Form 1099-DIV?" and enter the foreign tax amount $586 with the pay date of 12/31/2024, which is another indication that TurboTax will likely generate Form 1116.
10. Keep going until the foreign tax credit part is concluded.
11. The resulting tax return does not include Form 1116. However, if the foreign tax amount is $601 or more, it does include it.

[DaveF1006]

You are correct. According to this source, there should be a qualified payee statement that reports the income or foreign taxes paid.  Turbo Tax assumes that you have one since you know the amount of income and foreign taxes paid. Since the the income is passive and is under the thresholds of 300/600, Turbo Tax did not generate a Form 1116. There is no section to report asking if you received a qualified payee statement. 

Here you have three choices on how to report your return

1. To accept the return without a Form 1116. The amount of the foreign tax credit is small and may escape scrutiny from the IRS.
2. To print the form 1116 from your software and mail this in with your tax return with an explanation why you are including a Form 1116 with your return.
3. To report the foreign tax paid as $601 and include the Form 1116. You are now compliant with the tax code even though the foreign tax is not correct.

Option 2 is probably the best option but if you choose this option, you won't be able to file electronically.

[dextertexter]

Thank you very much for your reply, @DaveF1006! We will likely have to choose option 2 at the end of the day. However, since this issue seems to be a minor software bug and we still have about two months, we’ll wait and see if it gets fixed in future updates. We hope the TurboTax dev team has seen this thread. If not, we’ll look for a more official way to report this.

Thank you!

[rogge1722 · Accepted solution]

If you can't use the exemption due to lack of the required documents, you can elect to determine your credit by calculation on form 1116 in lieu of the default exemption.

In forms mode, open up the "Federal Information Worksheet." Scroll down to Part 6 and at the 5th paragraph see the "Foreign Tax Credit Form 1116". Checkmark the box to file form 1116.

TT will make the calculation and attach form 1116 to your return.

[dextertexter]

Thank you very much for your reply,  @rogge1722! It works! We’re really happy about that!

Thank you!

[user17735655894]

The advice to open up the "Federal Information Worksheet." Scroll down to Part 6 and at the 5th paragraph see the "Foreign Tax Credit Form 1116". Checkmark the box to file form 1116 does not work. The form is not generated. 

[DianeW777]

Double check to see if Form 1116 is required in your situation. If you meet the exemption criteria you will not need the form in your tax file.

When You May NOT Need Form 1116 (Exemption Criteria):
You may be exempt from filing Form 1116 if you meet all these conditions: 

1. All of your foreign source gross income is "passive category income" (e.g., dividends, interest).
2. All income and taxes are reported on a qualified payee statement (e.g., 1099-DIV, 1099-INT, K-1).
3. Total creditable foreign taxes are not more that $300 ($600 if married filing jointly)

@user17735655894 

[rogge1722]

Checkmark the box is only intended to file an existing form 1116, not generate it which is usually done thru the interview.

[user17735655894]

The conditions are not met. Furthermore, I want to file the Form 1116 because I have foreign tax credits from the past to carry over. I do not want to lose those credits. The worksheet for Form 1116 is generated but not the form itself. What am I am missing?

[CesarJ]

If you only have a foreign tax credit carryover and no current foreign income, TurboTax may not automatically generate Form 1116, because the form is typically used to calculate the credit based on foreign income and taxes paid this year. To enter your foreign tax credit carryover in TurboTax Online, follow these steps:

1. Go to the Deductions & Credits section.
2. Scroll to Estimates and Other Taxes Paid and select Start or Update next to Foreign Taxes.
3. When asked if you want the deduction or the credit, select Take a Credit.
4. Continue through the screens until you reach the section where you can enter your foreign tax credit carryovers.
5. Enter the amount of your carryover from prior years exactly as it appears.

This will ensure TurboTax includes your foreign tax credit carryover on your return properly.

@user17735655894

[user17735655894]

I have done all that already. I have entered all the amounts to be carried forward. Still the Form 1116 is not generate, just the worksheet is. 

[rogge1722]

Since you entered the carryovers manually, during the interview, did you enter the current year income source and amount in the screen that called for it ?

[DawnC]

Your carryover amounts are saved.   If you are not taking a Foreign Tax Credit on your 2025 tax return, TurboTax will not e-file the form with your return.   @user17735655894