Foreign Tax Carryforward...

May 24, 2012 2 Replies
C

I have several thousand in foreign tax credits I haven't been able to use because I haven't had enough income. I know I can carry it forward for 10 years; who knows maybe someday I will have enough income. Not likely, but possible.



I am thinking of getting rid of all my foreign stocks and going with a ETF instead. Among other things, I will never have foreign tax credits I can't use again.



Presumably that means I can never carry the old FTCs forward because I won't have any foreign income. I would probably never get to use them anyhow, but I hate to just lose them. Any clever way to show foreign income so I can use the carry forward?


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R

If you buy an ETF you will still have foreign income that is reported on

1099-DIV. Look at the detail statement of 1099-DIV; it will list the date of each dividend and country paid to, as well as date of each foreign tax paid and date. If the foreign tax credit is less than $300 if single and $600 if married, you can just take the foreign tax credit listed on 1099-DIV in full. But you don't have to. You can use form 1116, print out the foreign countries, dividends from each, foreign tax paid on 1099-DIV, then your credit. If your dividend income is more than these thresholds then you have to file form 1116, along with AMT form 1116. Pain. I forget whether you can use credit for country A towards country B.
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T

Consider buying securities listed on the appropriate foreign market (ie Toronto Stock Exchange for Canadian foreign tax credits). If you are able to sell at a net gain, that will generate foreign capital gains, against which you can use the credits.

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