Foreign Tax Credit carry forward

By "this" year do you mean 2009?

You have to file form 1116. However you can only take the foreign tax credit against foreign income. So if the tax rate of the foreign country is larger than the tax rate of the US, only then will the carryover make a difference.

Yes, by this year I mean 2009. I won't be paying any taxes this year, so I won't get any benefit from the foreign tax credit and must carry it over to 2010. Last year was the same. I did not file a 1116 because my foreign taxes were less than $600. This year they will also be less than $600, even with the carry forward. My reading of the instructions is that you don't apply carry forward until you can actually use it; so I don't think I put it on line 10 of the 1116 until I actually use it. So I am not sure the purpose of filing a 1116 if I won't be using either the 2008 or 2009 and it is all under the $600 limit. But maybe I am misunderstanding something.

Yes, file the 1116 in 2008; that will set the stage for the carryover to 2010. As indicated above, the credit can only be used against foreign income. So you might want to structure your investments to include some foreign interest income or non-qualified dividends. Those typically don't have foreign tax withheld, so you are more likely to be able to use the carry forward, as compared with qualified foreign dividend income, which usually has 15% (or higher) tax withheld.