TT is calculating my Foreign Tax Credit to be $0

Forum|Forum|2 years ago
April 11, 2024
3 replies
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Hi,

This is for Tax Year 2023 using TurboTax Home & Business Desktop (Mac).

Problem: TurboTax calculates by Foreign Tax Credit to be $0.

Here's my situation:

I received bank interest from some foreign banks. I paid foreign income tax on the bank interest.

The total tax amount is approximately $350.

I chose the option take it as a credit instead of itemized deduction.

- I do not have any other foreign income or foreign taxes
- I have no carryforwards or carrybacks
- I have no expenses against the foreign income
- I have no adjustments to foreign income

- I am married filing jointly

I have entered the bank interest as well as the foreign tax paid via 1099-INT. I did not actually receive any 1099-INT forms - but I entered the information as if I received the forms. I entered the payer name, interest received and, foreign taxes paid in the 1099 form.

I have associated the interest with the correct country and allocated the interest amount received to the tax in the TT screens.

TurboTax Desktop version says I should be able to claim this without filing Form 1116. It then proceeds calculate my tax credit to be $0.

In Forms mode, I do not see either a Schedule 3 or Form 1116 listed in the left navigation bar. However, when I search for Form 1116 I do see that it exists and the calculated amount is 0.

Form 1116 Part III Line 20 is 0 which is then multiplied with the fraction in Line 19 to yield a final amount of $0. I am not sure I understand how Form 1116 works.

I went through the TT screens a few times and sometimes it gives me the following message:

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You've met the requirements for taking the foreign tax credit without filling out Form 1116, but we don't see any foreign tax payments made (or there is no taxable income to apply the foreign tax credit against).

To enter foreign tax payments you must return to the income section of your return to enter foreign taxes paid on interest, dividends, or Schedule K-1 before you continue with the credit.
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I am not sure why the tax credit shows up as $0. Is there some other explanation / solution to claim the full amount foreign tax paid as a credit? I do not believe there should be any kind of "phase-out" for this tax credit as any such phase-out would amount to double taxation.

Best answer by rogge1722

Since there are no carryovers and assuming form 1040 line 16 has at least the amount of foreign tax paid, TT should have posted the foreign tax paid on line 20 as you qualify for the exemption. It appears TT does not see the foreign tax paid.

In Forms Mode, bring up the 1099-INT's. Make sure the foreign tax paid appears in box 6. If it is not there then type it in.
Also bring up form 1040 schedule B and verifiy that the income data from the interest payment is present.

rogge1722Answer

Employee

gmangeshAuthor

Hi rogge1722,

Thank you for the pointers.

Form 1040 Line 16 has 0.

I do not have a tax liability other than Self-employment tax. Is this why I don't get the credit? Does the credit not apply against SE tax?

Schedule B has the interest income, and
1099-INT has the tax in box 6 and country in box 7

Your help is greatly appreciated.

Thanks

SusanY1

The 0 on Line 16 is, indeed, why you don't get the credit. It doesn't apply to self-employment tax as it is only applies like-to-like on income.

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GBAYER

Part III, line 20 is your taxes owed before the foreign tax credit. Since no taxes are owed, you cannot take the foreign tax credit this year. However, it may be available as a credit in future years against taxes owed.

CM47

I had the same issue about a week ago, also with a MAC. The online chat help could not solve it after patiently spending a lot of time. He suggested that I try the next day. We did see the screen option for Turbo to calculate the most advantageous method for me, and to compare both, but it just kept giving 0 as a foreign tax credit. I wonder if this is a bug in the software ?

I tried again, and another online chat person told me to fill in the itemised rather than standard deduction. This worked, but after printing all my forms (closing the ticket) and sending them to the IRS with the money I realised that it did not print out the 1116 form to apply the foreign tax the credit that I could carry forward.. My case is fairly simple as the tax treaty is only one way, I now have to amend my tax return.

I suggest reading the booklet on foreign tax credit and instructions for form 1116 several times to be prepared because the online chat people are not specialists in this, although very kind and patient. It helps to manually complete the relevant forms to learn more about it, but I am a bit disappointed that I spent several hours on this for no reason.

BME

Hi @CM47 Welcome to the FTC Carryover Glitches Club.

Seems you got your carryover to show up without overrides, good for you! Not sure why using itemized deductions v. the standard deduction resolved the erroneous "zero FTC" errors for you, but interesting that it somehow did.

So frustrating that, in selecting the forms to file with your return, the software omitted your Form 1116 & 1116 worksheet that shows the carryover. Uggh. Why is it that we notice that kind of thing AFTER hitting the proverbial send button?