Today TaxMama hears from Yannig in the TaxQuips Forum, who is frustrated. “I paid foreign tax on dividends and interest earned abroad. The gains from foreign interest and dividends are more than offset by losses on stocks. So my total passive income is less than zero. Does that mean my maximum foreign tax credit is zero? As far as I can tell, that’s what form 1116 says. But I am being double taxed on most of my income from foreign interest and dividends. I can only deduct $3000 of losses on equities. (Although I can carry over the rest of the losses to deduct from gains in future years.)”
True, foreign tax credits are, what is a called, a non-refundable credit. If you have no tax liability, you don’t get any money back.
However, you will find that you are able to use the excess foreign tax credit by carrying it back or forward. See what William Perez, EA, the About.com TaxGuide has to say about this.
Yes, it’s true. Taxes are not fair. That’s why I try to help keep them as low as possible.
And remember, you can find answers to all kinds of questions about foreign tax credits and other tax issues, free. Where? Where else? At www.TaxMama.com.[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
Please post all Comments and Replies in the new TaxQuips Forum .