# US Taxes: Foreign Tax Credit Carryover Questions



## RetiredAbroad (Feb 3, 2019)

Last year I hired someone to do my US taxes. This year she's been non-responsive, so it looks like I'll be filing my own return for 2020. Actually, that shouldn't be much of a problem since almost everything seems very clear and straightforward this time around, with just one small exception -- dealing with a Foreign Tax Credit carryover from 2019.

Looking at my 2019 return, I see that I have about $750 in "general limitation" foreign tax credit carryover, as well as about $10 of "passive income" tax credit carryover.

In 2020, my income was fairly low, due in part to the pandemic, so I may not have enough taxable income to be able to claim any of either credit.

My questions are these:

1). If it turns out that I don't owe any 2020 US tax, how do I continue to carry over the credits for future use? Do I need to attach anything to my 2020 return, or will the carryover somehow be automatic until I decide to claim it within the 10-year carryover period?

2). If, on the other hand, I end up owing some tax for 2020, how do I actually go about claiming the credit? All I have as "proof" of my foreign tax credit carryover from 2019 is some computations on an extra sheet my tax preparer sent me along with my 2019 US return. 

I'd appreciate some advice. Thanks!


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## WhinGlobal (Dec 27, 2018)

RetiredAbroad said:


> Last year I hired someone to do my US taxes. This year she's been non-responsive, so it looks like I'll be filing my own return for 2020. Actually, that shouldn't be much of a problem since almost everything seems very clear and straightforward this time around, with just one small exception -- dealing with a Foreign Tax Credit carryover from 2019.
> 
> Looking at my 2019 return, I see that I have about $750 in "general limitation" foreign tax credit carryover, as well as about $10 of "passive income" tax credit carryover.
> 
> ...


A few comments to your questions:

1- We attach form 1116 G/L and passive basket to our expat clients 1040 tax return to not only show that no credit is used in current return, but also the amount to carry forward to future years. I would follow the instructions of form 1116.

2- To claim the credit, fill out and attach form 1116 to your Form 1040. You do not need to provide any proof (IRS has copies of your previous returns) long as those carry forwards are correct and not expired. Note that you will need foreign source income earned in current or in previous years to utilize the FTC carry forward.

Those two FTC baskets are claimed on separate form 1116 and then combined and reported on Schedule 3 (Form 1040), then to form 1040 page 2, line 20.

Hope this helps.


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## Moulard (Feb 3, 2017)

Further to what WhinGlobal has stated, when you file Form 1116 you attach a worksheet that breaks down the carryover from the last 10 prior years. That includes for each income category...

Foreign Taxes Paid in USD
Adjustments (as an example, if you were filing general category AND used the FEIE)
Utilized (the amount used to offset the US tax owed which "consumes" the foreign taxes paid)
Carryover / Carry Back amount for each year (foreign taxes paid minus adjustments minus utilized )
Total carryover (ie the amount available from the past 10 years that you can use in the following tax year
A copy of this should be attached to your copy of last years return for reference

1. Implicit in this is the value of line 12 a (US Tax owed) is zero. If you paid foreign taxes on the income you would still complete a Form 1116 for that category of income, and you would be able to carry over all the foreign taxes paid that have been allocated to that category. If you paid or accrued no foreign taxes, then I might simply attach the worksheet without form 1116

2. Complete a Form 1116 for each category, and the accompanying worksheet. 

A word of caution...

If you are filing Form 1116 for the first time it can be daunting. The instructions are terribly convoluted in the way they are written and it can take some time to parse it correctly. Basically you split your forieign taxes into buckets that are proportional to your income breakdown, then you split deductions etc, and US taxes owed to determine how much of your foreign taxes get allocated to each category.

If you are having difficulties, first step is to go the the IRS website and download the 2013 version of pub 514. That was the last year that they included a simple and complex worked example which might help get your head around it..

If you are still having difficulties PM me. I used those worked examples to create an excel workbook where if I popped in their numbers, the output was matched what was in the examples. Happy to share it.


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## RetiredAbroad (Feb 3, 2019)

Thank you! Both posts are extremely helpful.

I spent yesterday doing my taxes using fillable PDFs, and I think I did OK. I may file that way, on paper.

However, given the state of international mail during the pandemic, I wonder if I should purchase *TurboTax *(or a similar product) if it can handle our 2020 tax particulars and if I can use it to file online from overseas.

This year, our situation isn't particularly complicated since my wife and I are newly retired, and since COVID-19 all but eliminated the chance for any earned income on the side. 
In a nutshell, here's what we are dealing with for 2020 taxes (figures rounded):

Foreign Wages (foreign taxes withheld, 10% rate): US$ 6,000 
Self Employment (me) after expenses: US$ 1,300
Self Employment (wife) after expenses: US$ 800
Foreign Pension (me): US$ 600
Foreign Pension (wife): US$ 5,000
US Social Security (wife): US$ 4,000
Bank Interest (USA and foreign): US$ 100
Dividends (USA only): US$ 4,250
Cap Gains Distributions (USA only): US$ 12,250
less 2019 overpay applied to estimated tax: ( - US$ 1,750 )
That's it. Very straightforward, I think. 

With such little income for 2020, I don't see how I could use the foreign tax credit carryovers, which are...
2019 foreign tax credit remaining: US$ 750 General Limitation
2019 foreign tax credit remaining: US$ 10 Passive

I wonder: *Would using TurboTax this year (and entering the 2019 tax credit information, thereby generating any necessary data) make things easier for the future when I wanted to use the remaining tax credits?*


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## Moulard (Feb 3, 2017)

The nature of foreign tax credit carryovers is such that if you live in a higher taxing country, you never get to use them unless you get income in that category which is taxed differently.

For example in Australia, certain redundancy payments tax free here, but taxable in the US. Having a pile of tax credits available would help offset the US tax if I am made redundant in the future.

Sounds like you have already done the hard work. Should simply be a matter of not much more than cut and paste.

Some providers allow you to import the previous year's return and pre-populate stuff for you. Then use that information at the end so you can sanity check what you have entered.

I don't know if the free-file options support that. But the paid commercial products generally do.

Given you appear to be below the AGI for freefile, you should be able to use the IRS free file option or free fillable forms. Just check limits and eligibility before you commit to anything. 
Not all forms are supported this way. 






Free File: Do your Federal Taxes for Free | Internal Revenue Service


IRS Free File lets you prepare and file your federal income tax online for free. File at an IRS partner site with the IRS Free File Program or use Free File Fillable Forms. It's safe, easy and no cost to you.




www.irs.gov





Looks like the Free File program has just opened up for the tax year. I suspect Free Fillable Forms will come online in the next week or so.


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## Bevdeforges (Nov 16, 2007)

The free file stuff on the IRS website doesn't open up until the end of the month, but when it does, use their "wizard" thingee to select a free file company to use. Every year the limits change and normally only about 4 to 6 of the companies are able to handle "overseas filers" anyhow. The other thing is that for whatever reason many of the free file sites put an upper age limit on eligibility (sometimes as low as 52 or 58).

The wizard is the easiest way to cut through all the various limitations and find if you're eligible. I know last year I wound up with only one or two possibilities and they weren't the ones I expected (or had ever heard of, even). But the Free File Fillable forms are an option, even if you make less than the amount cited on the website. The one caveat is that the Free File Fillable forms can be amazingly fiddly and take multiple passes to complete to the point where they are acceptable for efiling. But they speed up the reception of your forms and the issuance of any refund available.


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## RetiredAbroad (Feb 3, 2019)

Thank you! You all have been of great help.

I just went to the IRS Free File site, entered my data into the lookup tool, got the exact same AGI result there as I did in my own tax calculations -- which was below the AGI cutoff for using Free File -- and I was referred to six possibilities, five of which seem to match our situation. (The sixth one didn't work, as we're over their age limit.) Of the remaining five (OLT, FreeFile, FreeTaxUSA, TurboTax, and 1040 Now), I'd only heard of TurboTax before, so I plan to start there. 

Thanks once again.


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## Moulard (Feb 3, 2017)

Bevdeforges said:


> The free file stuff on the IRS website doesn't open up until the end of the month,


It appears that it is open now and least as far as being able to review providers. 






Free File: Do your Federal Taxes for Free | Internal Revenue Service


IRS Free File lets you prepare and file your federal income tax online for free. File at an IRS partner site with the IRS Free File Program or use Free File Fillable Forms. It's safe, easy and no cost to you.




apps.irs.gov


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## Bevdeforges (Nov 16, 2007)

Moulard said:


> It appears that it is open now and least as far as being able to review providers.
> 
> 
> 
> ...


At least one part of that government is still up and running! <g>


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