Foreign Tax Credit Carryover

[kfbrady]

Last year I reported a sale of land in Canada.  On that sale I paid $7,308 (in US$) to the Canadian government and filed for FTC.  The calculation on my Turbotax return allowed me a credit of $3,589, with the balance - I assumed - to be carried over to this year's return.  This year I have no foreign income but when I enter a carryover amount of $3,719 ($7,308 - $3,589) TT makes no changes to the amount of my refunds.

Am I doing something wrong, or is there something I don't understand?

[ThomasM125]

You can only use the foreign tax credit in a year that you report foreign income on your tax return. That is because you can only use it to the extent you pay US tax on your foreign income. For example, if in year one half of your income was from foreign sources, you can only deduct half of your foreign tax. You can't deduct the rest of it until you have foreign income in future years.

[kfbrady]

I'm not trying to take a foreign tax credit in my 2021 return as I had no foreign income in 2021.  I did have foreign income in 2020 and the calculation in my return gave me a credit which was less than the foreign taxes I had paid and listed the difference as a carryover amount.  What I am trying to do is apply that carryover amount to my current 2021 return.

[ThomasM125]

You can't apply the credit carryover to 2021 if you didn't have any foreign income in 2021. You can only use it to the extent you have US income tax on foreign income. You used some of it in 2020 because you had foreign income in that year, so some of your US tax was on foreign income you added to your US income. You can't use it again until a year in which you have foreign income.

[kfbrady]

Thanks for your response.  I've thought it through some more and I can see the logic now.  Basically I'm getting credit for the difference between the tax rates that I paid to a foreign country and what I would have paid on that income in the USA, and not for the entire amount of foreign tax I paid, although I can carry the balance forward to use if I have further foreign taxes.