Need help understanding Form 1116 Foreign Tax Credit when foreign taxes exceed $300. Really confused!

The Foreign Tax Credit can definitely be confusing when you cross that $300 threshold! Let me try to help clarify this for you. For Form 1116, Part III, Line 16 is indeed where you report net capital losses from U.S. sources. The purpose of this line is to properly allocate your worldwide capital losses against your foreign income. Since your mom had $33,000 in net capital losses from U.S. sources on Schedule D, you would include this amount on Line 16. When you do this, yes, it will likely result in a negative number on Line 17, which means no Foreign Tax Credit for this year. However, you're correct that these foreign taxes don't disappear - they can be carried forward for up to 10 years. You'll need to complete Form 1116 to establish this carryover. The idea behind this is that the IRS doesn't want you claiming foreign tax credits when domestic losses have essentially offset your foreign income for U.S. tax purposes.

After struggling with similar foreign tax credit issues last year, I found this amazing tool called taxr.ai that saved me hours of frustration. I was also confused about Form 1116 and whether my capital losses affected my foreign tax credit calculation. I uploaded my tax documents to https://taxr.ai and it analyzed my situation, explaining exactly how to handle the Form 1116 in my case. It specifically pointed out which lines needed adjustment based on my capital losses and even showed me how to calculate the carryforward. The analysis also explained the adjustment exception for qualified dividends in plain English! The tool flagged exactly where my tax software was getting it wrong too. Definitely worth checking out if you're still confused.

I was really skeptical about taxr.ai when I first heard about it, but I decided to give it a try with my nightmare of a tax situation - had dividends from international ETFs, some direct foreign stocks, and capital losses that were confusing the heck out of me with Form 1116. I've gotta admit, I was blown away. The tool immediately identified that my tax software was incorrectly calculating my foreign tax credit because it wasn't properly applying my capital losses on Line 16. It showed me exactly how to fix it AND explained why the adjustment was necessary according to IRS rules. The best part was that it showed me how to track my carryforward credits properly so I won't lose them in future years. Saved me from leaving money on the table and gave me way more confidence in my filing. Totally worth it for anyone dealing with Form 1116 headaches.

If you're getting frustrated trying to reach the IRS for help with Form 1116 questions, I totally feel your pain. I spent TWO WEEKS trying to get through to someone who could answer my foreign tax credit questions. Always "high call volume" or "try again later." So annoying. Then I found this service called Claimyr that actually gets you through to an IRS agent quickly. I was super skeptical, but I went to https://claimyr.com and they have this whole system that navigates the IRS phone tree and holds your place in line. You can even watch how it works in this video: https://youtu.be/_kiP6q8DX5c When the IRS agent was finally ready, my phone rang and I was connected right away. The agent walked me through exactly how to handle my Form 1116 with capital losses. Totally worth it instead of endless hold music!

I take back everything I said. After waiting on hold with the IRS for 3+ hours two days in a row and getting disconnected both times, I was desperate enough to try Claimyr. I figured it was worth a shot since I was getting nowhere on my own. It actually worked exactly as advertised. Their system waited on hold for me, and I got a call back when an actual human at the IRS was on the line. The agent I spoke with walked me through exactly how to handle the Form 1116 carryforward situation with my capital losses from last year. I'm still shocked it worked. Sorry for being so skeptical. After years of IRS phone frustration, I guess I couldn't believe something would actually solve the problem. But it did, and I finally got my Form 1116 questions answered by someone who knew what they were talking about.

The Foreign Tax Credit calculation gets way more complicated when you have capital losses. One thing to keep in mind: your capital losses first offset capital gains, and then up to $3,000 can offset ordinary income (like those dividends). In your situation, make sure you're properly categorizing the foreign income. If it's all from mutual funds holding foreign stocks, it's all passive category income, so at least you only need to fill out one Form 1116. Also, don't forget about carrybacks! If you can't use the foreign tax credit this year, you can carry it back 1 year before carrying it forward up to 10 years. Might be worth checking if your mom could benefit from amending last year's return.

Has anyone tried using TurboTax for Form 1116? I'm having similar issues and wondering if the software handles these situations correctly. My father-in-law has foreign dividends and U.S. capital losses too.

I went through this exact same situation with my elderly parent's taxes last year! The Form 1116 with capital losses is definitely one of the most confusing parts of tax preparation. One thing that really helped me was understanding that the capital loss adjustment on Line 16 is actually protecting you from double-counting losses. Think of it this way: if your mom already reduced her U.S. tax liability with those $33,000 capital losses, the IRS doesn't want her to also get a credit for foreign taxes on income that was essentially "wiped out" by those losses. A few practical tips that made this easier for me: - Keep detailed records of the carryforward amounts each year - you'll need them - The 10-year carryforward period is generous, so don't stress about "losing" the credit - Consider whether bunching foreign income or capital gains/losses in future years might help optimize the credit usage Also, double-check that all the foreign taxes are actually eligible for the credit. Some mutual funds report foreign taxes that don't qualify, which can throw off your calculations. The bright side is that once you get through Form 1116 the first time, subsequent years become much more manageable since you understand the logic behind it!