Unable to Correct Wrong Foreign Tax Credit

[Stoaty]

I entered the wrong number for foreign income of $126 which caused Turbotax Desktop to calculate the wrong foreign tax credit as only $31.  I went back and corrected the amount of foreign income to $1611, but the foreign tax credit is still $31.  It should be $126 which is the amount of foreign tax paid.  The worksheet for form 1116 shows the correct amount of foreign income now ($1611), but the foreign tax credit is not corrected to $126.  This looks like a bug to me. How do I fix this?  Everything I tried didn't work.

Token 4626745202543025-89111133

Thanks for any help.

John

[pk]

@Stoaty , while it is possible that something is wrong.  However, to determine if it is real , need the following information first 

(a)  Type of foreign source income ( active, passive etc.)

(b) country of foreign source income ( there may be treaty considerations )

(c) your world income ( on which the  federal tax is based ) --- this is because form 1116    recognizes the full amount of declared foreign tax but allows only the lesser of  US tax  and the foreign taxes paid  on the same/ doubly taxed income -- the rest of the Foreign Tax is available for carry back or  forward.  The US tax on this doubly taxed income  ( i.e. allowable FTC ) is  allocated based on  foreign source income to world income ratio.

(d) additionally, if the Foreign source income is passive  and generally reported on 1099, then you may be able to use "safe harbor" of  up to US$300 ( i.e. lesser of actual paid  and the limit amount )  and not use  the form 1116  ( with its limitation )

Please answer my questions -- will circle back once I hear from you.

[DaveF1006]

Check the bottom of the worksheet to see if there is a foreign tax carryover to 2026. If so, that may account for the difference. You may not have had enough US tax liability to utilize the full amount of the credit. 

@Stoaty 

[Stoaty]

No, that is not it.  Thanks for suggestion though.

[SusanY1 · Accepted solution]

Thank you for sharing your tax file token.  I've had a chance to take a look, and the reason the credit is being reduced is because it is limited to the tax on your return. (Form 1040, Line 16)

Since the foreign tax credit is a nonrefundable credit only the amount of the credit equal to your tax will transfer to Form 1040 (and Schedule 3 Line 1).  

You can "test" this yourself by temporarily adding some additional income (interest is a good place to add it) and then you'll see that credit increase to match the additional tax.  If you do this, don't forget to remove the dummy income, of course!

 

[Stoaty]

I guess I have to wait until the tax is computed?  Confusing.

[DawnC]

The maximum credit you can receive is limited to Line 16 of your Form 1040.   So, the maximum foreign tax credit you can receive is the amount on Line 16 of your tax return.  

[Stoaty]

Part of the problem is that I couldn't believe I owed no tax at all.  However, after carefully studying the numbers I determined that Turbotax was correct.  The error was all mine.  Thanks for the help!