Foreign Tax Credit help

[cientax]

I have a client that has foreign taxes paid in prior years and has carryover each year but when we do the 1116, the form does not give credit for the carryover taxes paid. The taxes were paid to Canada and the client lives in the U.S. The form only gives credit for the taxes paid in the current year.

Can someone please help and if need I can give my email or we can discuss on phone. Thanks

[jklcpa]

Nothing is showing up on line 10 of the form 1116? Have you filled in the other information on page 1 in the deductions section? ATX isn't the easiest program to use for the 1116, but I seem to remember that the program would allow the full credit in the current year but wouldn't have the information to really calculate it correctly including those carryovers if this deduction section isn't completed.

[joanmcq]

Is there a carryover this year too? If the tax rate is higher in Canada, she'll never get a credit for the full amount.

[cientax]

There is a carryover every year of about 150K that we want to use at least some of to reduce her federal U.S. tax, but her income from Canada is usually less than 10K gross and it is passive income from rent of farm land. This is a family farm rental and split between her dad and other siblings and her gross is less than 10K and net is usually about 7K. Her U. S. income however with her husbands income is well over 160K and most of that is husbands income from U.S. wages. She has other passive income but less than 20k.

[kcjenkins]

You can carry back 1 year and then forward 10 years any foreign tax you paid or accrued to any foreign country or U.S. possession (reduced as

described under Line 12, later) on income in a separate category that is more than the limitation. First, apply the excess to the earliest year to which it

may be carried. Then, apply it to the next earliest year, and so on. The carryback-carryforward period cannot be extended even if you are unable to

take a credit in one of the intervening years.

Special rules apply to the carryback and carryforward of foreign taxes paid or accrued on foreign oil and gas income. In addition, special restrictions

apply to the carryforward of pre-2009 unused oil and gas extraction taxes to years beginning after 2008. See section 907(f).

File Form 1040X or other amended return and a revised Form 1116 for the earlier tax year to which you are carrying back excess foreign taxes.

Special rules for carryforwards of pre-2007 unused foreign taxes. The foreign taxes carried forward generally are allocated to your post-2006

separate income categories to which those taxes would have been allocated if the taxes were paid or accrued in a tax year beginning after 2006. Alternatively, you can allocate unused foreign taxes in the pre-2007 separate category for passive income to the post-2006 separate category for passive category income, and you can allocate all other unused foreign taxes in the categories that were eliminated in 2007 to the post-2006 separate category for general category income.

Restrictions. You cannot carry a credit back to a tax year for which you claimed a deduction, rather than a credit, for foreign taxes paid or accrued. However, you must reduce the amount of any carryback or carryforward by the amount that you would have used had you chosen to claim a credit rather than a deduction in that year.

It SHOULD roll over, but if it does not, I'd do a worksheet and include the worksheet as an attachment.