No AMT owed, TT still forcing me to choose Simplified Limitation Election for AMT

[taxes4739]

TurboTax calculates that I don't owe AMT:

Yet despite that, in the Foreign tax Credit section it says "because you're subject to the alternative minimum tax (AMT)"...

Specific Questions:

1) This is self-contradictory. Why is it stating that I'm not subject to AMT in one place and that I am in another?

2) The fact that it's asserting I'm subject to AMT in the foreign tax section means it's requiring me to decide about making the Simplified Limitation Election this year. As I understand it, that's a once in a lifetime election that you have to either make or not in the first year you're eligible, and can never be changed thereafter. I'd strongly prefer not to decide this year if I don't have to, and given that I'm not subject to AMT, I don't believe I should have to. Why is TurboTax saying this is the first year I'm eligible for the election?

3) Can I avoid having this year be the year I have to decide on this election for life?

Note: I checked TT's forms view, and it is generating 6251. Line 7 is less than line 10.

Note: I'm not really looking for help deciding what's the right choice for the election - there are various considerations (i.e. dual citizen, may live/work overseas in the future, have stock options which may be subject to AMT, etc, etc). The focus of this post is solely the 3 questions above: why it's contradicting itself, why it's asking me to make the election, & if if it can be avoided

[DaveF1006]

It depends. Since you’re claiming a Foreign Tax Credit with Form 1116, the IRS asks for a separate “AMT version” of that credit. Even if your AMT comes out to $0, the calculation still needs to be included on your return to show you don’t owe anything. That’s why the FTC module considers you “subject to” AMT calculation rules.

You cannot avoid making the decision on whether or not to choose the Simplified version. Since you are filing Form 1116 this year, the IRS requires you to choose a method (Simplified or Standard) to calculate the AMT version of your credit. This is for this year as well as all future years, even if you did not owe alternative minimum taxes this year.

As far as why this is the "first year" I'm eligible? it could be because. 

1. If in previous years your foreign taxes were under the threshold ($300 individual / $600 joint) and you didn't file Form 1116, you weren't "claiming" an AMTFTC yet—you were just taking the exemption. 
2. The moment your foreign taxes exceed that threshold, TurboTax generates Form 1116 AMT. This is technically the first time the election is available to you. TurboTax sees that no prior return in its history has made this election, so it marks this as your "Year 1.

If you truly want to avoid the "once-in-a-lifetime" trigger and your foreign tax paid is only slightly over the $300/$600 limit, some taxpayers choose to voluntarily limit their credit to exactly $300/$600. By doing this, you don't need Form 1116, which means you don't need to calculate AMTFTC, and the election clock never starts. 

[taxes4739]

Wow, thanks for the great/clear reply!

> As far as why this is the "first year" I'm eligible? it could be because [...] in previous years your foreign taxes were under the threshold ($300 individual / $600 joint)

That's it. Last year it was 227; this year it reached 312.

> If you truly want to avoid the "once-in-a-lifetime" trigger and your foreign tax paid is only slightly over the $300/$600 limit, some taxpayers choose to voluntarily limit their credit to exactly $300/$600

Interesting. Seems like that might be worth it given it's only 312 - tho I imagine that's just punting it one more year, when my foreign tax from investments will have (presumably) grown. My original (mis)-understanding was that I wouldn't have to decide on the election unless or until I actually owe AMT, which may be far in the future or never happen. But if the need to make the election triggered by just $300 of foreign tax credit...that would be right around the corner either way. Which sort of makes me wonder (out of curiosity), do you know the rationale for why some people limit at $300 to avoid making the election?

> Since you are filing Form 1116 this year, the IRS requires you to choose a method (Simplified or Standard) to calculate the AMT version of your credit.

So...a CPA did actually file Form 1116 for me in a prior year, but with only $31 of foreign tax. There was no Form 6251 that year. Does that prior Form 1116 mean I was already eligible for the election...? Does it affect this in any way?

Thanks again! 🙂

[DaveF1006]

 You may wish to check your return for that year or with the accountant to see if he/she made an election in that year.  Usually if a Form 1116 is generated for a Foreign Tax paid that is below the Form 1116 threshold amount, you would need to declare a standard election method for the form to appear in your return. Check this as it is important on whether or not you need to make the same election this year.

Your accountant may have created a form 1116 for your records only, and if they did, you can make the election this year. It's recommended that you elect to take the Simplified Election if you only have one category of income such as passive category income, which includes investment income. If you have other types of foreign income such as pensions, you should take the standard election because there are different categories of income that effect AMT. A standard election create additional reporting requirements that can be complex. 

As you mention, it may be worth just reporting the $300 so you won't have to make a choice.  Before you do, ask the accountant if they made an election for you when your Form 1116 was generated for the $31 Foreign Tax credit. 

[taxes4739]

> You may wish to check your return for that year or with the accountant to see if he/she made an election in that year.

The election could only have been made on 6251, right? So since my return doesn't have 6251, it should definitely mean they didn't make an election & there's no need to ask? (I actually stopped working with that accountant because, in part, they were very hard to get in touch with & slow to respond. I can of course reach out if necessary, but just want to clarify here first)

> Usually if a Form 1116 is generated for a Foreign Tax paid that is below the Form 1116 threshold amount, you would need to declare a standard election method for the form to appear
> ask the accountant if they made an election for you when your Form 1116 was generated for the $31 Foreign Tax credit.

Same question - it sounds like you may be saying that just checking my return is not sufficient to know if the election was made...?

> it may be worth just reporting the $300 so you won't have to make a choice.

Yeah, (subject to above) that's probably what I'd do. But in order to get that to work, I'd need to edit the info from my 1099-DIV & reduce the value in Box 7 from 312 to 300 - thus making my entry not match what the brokerage reported on the 1099-DIV. That's the only way, right? If so, that's permissible & won't throw up any red flags?

Thanks again

[taxes4739]

Or if anyone else knows the right/accepted way to "voluntarily limit [my] credit to exactly $300". I've looked around & still the only way I can figure out is to enter 300 instead of 312 for 1099-DIV Box 7 - I'm just a little concerned the IRS won't that & flag it as a mismatch vs the 1099-DIV they receive...?

[MarilynG1]

Yes, you would need to edit the amount of foreign tax paid on your 1099-Div entry to $300 or less to qualify for the not filing Form 1116.  This is not necessarily an IRS flag, as many don't report Foreign Tax Paid at all.  

The AMT calculation for the Foreign Tax Credit is computed whether you are subject to AMT or not, so it is not implying that you are.  If you never have been, and are not in 2025, subject to AMT, you can choose the simplified election and it won't affect your regular taxes.

The AMT Simplified Limitation Election for the Foreign Tax Credit (FTC) is a choice in TurboTax that allows you to use your regular tax foreign source income figures to calculate the FTC for Alternative Minimum Tax (AMT) purposes. This avoids complex, separate calculations for AMT, often recommended if you only have simple foreign income like dividends or mutual funds.

Here's more info about the Simplified Election for AMT in FTC. 

@taxes4739 

[taxes4739]

Thanks! That's exactly what I went ahead & did 🙂