Re: foreign tax credit carryover

darocco · ‎03-15-2023

client has a large foreign tax credit carryover. this year he sold foreign stock for a gain (no foreign taxes withheld). Transaction occurred in the foreign country; not reported on a 1099B.

Is he able to use form 1116..show the foreign capital gain and use up some of the carryover tax credit.

He also had large dividends from the same stock with foreign taxes withheld ( I know how to handle this.). He has been getting these dividends for years so he has accumulated a large carryover.

Thanks

sjrcpa · ‎03-15-2023

The gain on that stock is foreign source income for the 1116 if that's your question

The more I know the more I don’t know.

darocco · ‎03-15-2023

Thanks for replying… So I can include the capital gain even though no foreign taxes were withheld and not double taxed? Unlike the dividends automatically included on Form 1116 I will need to manually add a new column for the capital gain.

sjrcpa · ‎03-15-2023

It's foreign income used in the calculation of how much foreign tax credit can be used this year.

Since it wasn't double taxed it may not help.

The more I know the more I don’t know.

darocco · ‎03-15-2023

My concern is since it wasn’t foreign taxed and the client had a huge tax credit carryover. Including this income increases foreign source income and client is able to used a good amount of carryover credits on this income, it just seems off to me.

sjrcpa · ‎03-15-2023

"Including this income increases foreign source income"

Yes it does.

Beware that if it's LT capital gain you need to make an adjustment on the 1116 and I bet ProSeries doesn't do it automatically.

The more I know the more I don’t know.

darocco · ‎03-15-2023

I already made the adjustment. ProSeries automatically makes the 40% adjustment. If the tax adjustment is a different percentage then you need to override the calculation.