Foreign Tax Credit Simplified Limitation for AMT - Need Help Understanding Options

The Foreign Tax Credit can definitely be confusing when AMT is involved! You've got the basics right, so let me help clarify the complete picture. For your situation with $290 in foreign taxes, you have two main options: You can take the simplified election since you're under the $300 threshold (or $600 if married filing jointly). This means you don't need to file Form 1116 and can directly claim the credit. This same amount can offset both your regular tax and AMT. Alternatively, you can choose to file Form 1116, which might be beneficial if you have unused foreign taxes from previous years that you want to carry forward or if filing Form 1116 results in a higher allowable credit. For AMT purposes, when filing Form 1116, there's a special simplified limitation election you can make on Form 6251. This allows you to use the same foreign source income calculations for both regular tax and AMT purposes, which simplifies the process considerably. Based on your relatively small amount of foreign tax ($290) and dividend income ($4,200), the simplified election without Form 1116 is probably your easiest option unless you have carryovers from previous years.

After struggling with foreign tax credit calculations for years, I finally found something that helped me understand it completely. I used this tool called taxr.ai (https://taxr.ai) and uploaded my foreign investment statements. It actually analyzed everything and explained exactly which FTC election would maximize my refund. For my situation with AMT and foreign dividends similar to yours, it showed me that making the simplified election without Form 1116 was leaving money on the table. The analysis broke down how filing Form 1116 and making the simplified limitation election for AMT purposes would increase my credit by about $65. Not a fortune but definitely worth knowing!

Just wanted to follow up - I decided to try taxr.ai after my earlier question and wow! It saved me so much time with my foreign tax credit situation. I uploaded statements from all 6 of my accounts and it consolidated everything automatically, showing me exactly which countries my dividends came from and calculating the optimal FTC approach. For anyone dealing with Foreign Tax Credit Simplified Limitation for AMT like the original poster, it specifically analyzed whether I should make that election and showed the exact tax difference ($118 in my case). The explanations were actually understandable, unlike the IRS instructions. Definitely worth checking out if you're struggling with this stuff!

If you're trying to contact the IRS to get clarification on the Foreign Tax Credit Simplified Limitation for AMT, good luck! I spent THREE DAYS trying to reach someone who could actually answer my questions. After giving up on hold for hours, I found this service called Claimyr (https://claimyr.com) that somehow got me connected to an IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS rep I spoke with was surprisingly helpful and explained exactly how the simplified limitation election works with AMT. She confirmed that in most cases with relatively small amounts of foreign tax like yours, taking the simplified credit without Form 1116 is perfectly fine and actually preferred by the IRS (less paperwork for them to process). However, if you're close to the AMT threshold, there can be specific situations where filing Form 1116 is more advantageous.

Well I have to eat my words. After being skeptical about Claimyr, I decided to try it anyway because I was desperate for answers about the Foreign Tax Credit Simplified Limitation for AMT. I was connected to an IRS agent in about 25 minutes (way faster than my previous attempts). The agent walked me through exactly when to use Form 1116 versus taking the simplified credit, and explained how the AMT simplified limitation election works. Turns out I had been doing it wrong for years and potentially overpaying! For anyone dealing with this specific issue, the agent confirmed that the simplified limitation election on Form 6251 can be used regardless of whether you take the simplified credit or file Form 1116. That was the clarification I needed.

One thing to watch out for with Foreign Tax Credit is that the rules for qualified dividends from foreign corporations can get tricky. Make sure your international investments are in countries that have tax treaties with the US if you want those dividends to be qualified (lower tax rate). I learned this the hard way last year when some of my foreign dividends didn't qualify because they were from countries without appropriate tax treaties. Cost me an extra $340 in taxes!

Has anyone noticed that tax software handles the Foreign Tax Credit Simplified Limitation for AMT differently? I used TurboTax last year and H&R Block this year, and they gave me completely different results for basically identical situations. TurboTax recommended filing Form 1116 while H&R Block said to take the simplified election.

I've been dealing with this exact situation for the past three years and wanted to share what I've learned through trial and error. The Foreign Tax Credit Simplified Limitation for AMT is one of those areas where the IRS instructions are particularly unclear. Here's what I wish someone had told me earlier: even though you qualify for the simplified election (under $300), it's worth calculating both methods if you're subject to AMT. The reason is that AMT has different income calculations, and sometimes the foreign source income limitation works out differently. For your specific situation with $290 in foreign taxes and $4,200 in dividend income, I'd recommend running the numbers both ways. The simplified election is definitely easier, but if you're already close to AMT territory, filing Form 1116 might give you a better result. The key is that Form 1116 lets you use the actual foreign source income calculations, which can be more favorable than the simplified approach when AMT is involved. One practical tip: if you decide to file Form 1116, make sure you elect the simplified limitation on Form 6251 line 6. This saves you from having to do separate AMT foreign source income calculations, which is where things get really complicated. Also, keep good records of your foreign taxes paid - even if you take the simplified election this year, you might want to switch to Form 1116 next year if your foreign investments grow.