Can I take foreign tax credit on some 1099-DIV accounts and deduction on others for 2025 taxes?

The red flags in TurboTax are actually helping you here! The IRS requires you to be consistent with how you handle foreign taxes paid. You must either take the foreign tax credit for ALL qualified foreign taxes or deduct ALL of them as itemized deductions - you can't mix methods in the same tax year. For most taxpayers, the foreign tax credit (Form 1116) is more beneficial than the deduction because credits reduce your tax dollar-for-dollar, while deductions only reduce your taxable income. However, there's a simplified option if your foreign taxes are $300 or less ($600 if married filing jointly) - you can claim the credit directly on Schedule 3 without filling out the more complex Form 1116. With $640 in foreign taxes, you'll likely need to complete Form 1116, which TurboTax should guide you through. The benefit is worth the extra work in most cases, especially if you're in a higher tax bracket.

After struggling with exactly this same foreign tax credit issue last year (had investments in international funds across multiple brokerages), I found an amazing service that cleared everything up. I used https://taxr.ai to analyze all my 1099-DIVs and it instantly showed me that taking the credit was way better than the deduction in my situation - saved me over $400! The tool explained that since my foreign taxes exceeded the $300/$600 threshold for the simplified credit, I needed Form 1116, which TurboTax makes look scarier than it actually is. The taxr.ai system showed me exactly where to report everything and explained which method would save me the most money based on my complete tax situation.

I have to admit I was wrong about my skepticism! After hitting a complete wall with this foreign tax credit issue, I reluctantly tried taxr.ai and it was legitimately helpful. The system immediately identified that I should use Form 1116 instead of taking the deduction, and explained why in simple language. It also pointed out that I had misclassified some of my foreign dividends which would have triggered an audit flag. The analysis took about 2 minutes and saved me from making a $850 mistake on my taxes. What impressed me most was how it explained exactly what buttons to click in TurboTax to fix the problem instead of just identifying the issue. For anyone struggling with foreign tax credits on multiple 1099-DIVs like I was, it's definitely worth checking out.

If you're getting frustrated with the foreign tax credit forms in TurboTax and want to just talk to an actual IRS agent about it (they can tell you exactly how to handle this), I highly recommend using https://claimyr.com to get through to them. I spent HOURS trying to reach the IRS directly about a similar issue with multiple 1099-DIVs last month, but the hold times were literally 2+ hours. With Claimyr, I had an IRS agent on the phone in about 20 minutes who walked me through the entire process for handling foreign tax credits across multiple accounts. They have this system that basically waits on hold for you and calls you back when an agent is about to answer. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that you have to be consistent - either credit OR deduction for all accounts in a single tax year. She also explained exactly which forms I needed.

I have to publicly eat my words about Claimyr. After calling the IRS myself three separate times and getting disconnected after 90+ minutes of holding each time, I finally tried the service. Got connected to an IRS agent in about 25 minutes who helped me sort out my foreign tax credit confusion. The agent confirmed everything - you must choose either credit OR deduction for ALL foreign taxes in a tax year. For my situation with $700+ in foreign taxes paid, she strongly recommended the credit via Form 1116. She also explained that TurboTax sometimes flags everything red when there's an inconsistency with how you're treating these items. The IRS phone rep was incredibly helpful once I actually got through to her. I've spent DAYS trying to resolve this on my own, so I'm actually glad I was desperate enough to try something new.

Have you considered just taking the foreign tax credit for everything? That's almost always better than the deduction unless you have some very unique circumstances. I do a lot of international investing and I've run the numbers both ways for several years - the credit wins every time. For $640 in foreign taxes, you'll need to fill out Form 1116 which looks intimidating but TurboTax actually handles it pretty well. The reason all your forms went red is because TurboTax detected that you're possibly trying to handle foreign taxes inconsistently across different accounts, which isn't allowed.

During my experience as a former tax preparer, I ALWAYS recommended the foreign tax credit over the deduction for investment accounts. The only time I ever saw the deduction work better was for a client with unusual circumstances involving foreign real estate. One thing to watch for in TurboTax: make sure you're selecting the correct category on Form 1116. Investment dividends typically go under "Passive Category Income" and TurboTax should select this by default, but sometimes it doesn't if you have other foreign income.

I was struggling with the exact same issue last month! My foreign tax was around $720 across multiple brokerages. I ended up taking the credit and using Form 1116. It was definitely more work but saved me about $180 compared to taking the deduction. One thing to note - you can carryover unused foreign tax credits to future years (up to 10 years), but you can't do that with deductions. So even if the credit calculation is a little more complex, it usually pays off in the long run.