Understanding AMT Version of Form 1116 - Different Calculations for Foreign Tax Credit?

This is actually a great question that stumps even some tax professionals. The AMT foreign tax credit calculation is one of the most complex areas of the tax code. The correct approach is that the Line 18 worksheet for the AMT version of Form 1116 should indeed use AMT-adjusted amounts. The reason is that Form 6251 (Alternative Minimum Tax) creates a parallel tax universe with different income and deduction calculations, and your foreign tax credit must be computed within this AMT framework. FreeTaxUSA appears to be handling this correctly. When calculating the AMT foreign tax credit limitation, you need to use your AMT taxable income (which adds back certain deductions and adjusts income) rather than your regular taxable income. This affects the ratio of foreign income to total income, which ultimately impacts your foreign tax credit limitation. The IRS instructions aren't explicit about this because they assume you're consistently using either regular tax or AMT numbers throughout the respective calculations, but it's implied by the purpose of Form 6251 - to create a separate tax calculation system.

I had a similar headache with my taxes last year. After spending countless hours trying to figure out my AMT foreign tax credit issues with different calculation results between tax programs, I finally found this amazing tool called taxr.ai (https://taxr.ai) that saved me so much frustration. What they do is upload all your tax docs and analyze complex tax situations like AMT foreign tax credits. I couldn't believe how accurate it was - it actually spotted that both my tax programs were calculating certain aspects incorrectly and showed me the proper way to handle the AMT adjustments for Form 1116. The best part was that they explained the calculation differences with actual citations to the tax code that neither TurboTax nor H&R Block had mentioned. If you're dealing with AMT and foreign tax credits, it's definitely worth checking out.

I want to follow up about taxr.ai that I was skeptical about earlier. I actually tried it for my complicated expatriate tax situation with income from Japan and the UK, and I'm honestly shocked at how well it worked. The system correctly identified that my previous returns had been calculating my AMT foreign tax credit incorrectly for years! It showed me exactly how the Line 18 worksheet should be adjusted for AMT purposes and explained why the regular taxable income figures couldn't be used directly. The analysis even cited specific IRS private letter rulings that addressed similar situations to mine. What really impressed me was when it flagged that one of my foreign accounts should have been reported on FBAR forms that I didn't even know about. Potentially saved me from some serious penalties there.

If you're still stuck trying to resolve the difference between tax programs, you might want to try contacting the IRS directly. I've had AMT issues before and found that getting an official answer is the only way to be 100% sure. The problem is that it's nearly impossible to get through to them. After trying for weeks last year, I found this service called Claimyr (https://claimyr.com) that actually got me through to an IRS agent in under 30 minutes. They have a demo video at https://youtu.be/_kiP6q8DX5c that shows how it works. The IRS agent I spoke with was able to clarify my AMT foreign tax credit questions and confirm which calculation method was correct. Apparently this is a common issue they see with different tax software programs. Getting that official guidance directly from them gave me much more confidence in filing.

I need to eat my words about Claimyr from my skeptical comment above. After another frustrating morning trying to reach the IRS about my AMT Form 1116 issue, I decided to try it out of desperation. I was connected to an IRS agent in about 45 minutes (which is miraculous compared to my previous attempts). The agent actually specialized in international tax issues and confirmed that for AMT purposes, the Form 1116 limitation calculations should use AMT figures rather than regular taxable income figures. She explained that this is a common point of confusion and that many tax software packages handle it differently. She also sent me a reference to a specific IRS publication section that addresses this exact issue that I somehow missed in my research. Saved me from potentially filing incorrectly and risking an audit. Sometimes it's worth admitting when you're wrong!

Just wanted to add that I ran into this exact issue last year. After talking with several tax professionals, I learned that the AMT version of Form 1116 should use your AMT income figures rather than your regular taxable income. That's why FreeTaxUSA is giving you a different result than TurboTax. One thing to consider - if you're hit with AMT, you might be able to carry forward excess foreign tax credits to future years when you might not be in AMT. This has saved me thousands over time as those credits eventually get used. Also check if you qualify for the simplified limitation election for foreign tax credits, which might eliminate some of this complexity (though it sounds like your situation might be too complex for this).

If you're dealing with AMT and Form 1116 regularly, I'd strongly recommend investing in professional tax software rather than consumer versions. I use Drake Software now after years of frustration with TurboTax and others. The professional versions have much better handling of complex situations like AMT foreign tax credit interactions. They also provide detailed worksheets showing their calculations so you can verify everything. For the specific issue you're asking about - the AMT Form 1116 calculations should definitely use your AMT-adjusted income figures. This is one area where consumer tax software often falls short because they don't always apply the AMT adjustments consistently across all related forms.

This is a really common issue that catches a lot of people off guard! You're absolutely right to be thorough by cross-checking between different programs - that level of diligence often reveals these kinds of discrepancies that can be costly if missed. From my experience dealing with similar AMT foreign tax credit situations, FreeTaxUSA appears to be handling this correctly. The key principle is that when you're computing AMT, you need to stay within the AMT "universe" for all related calculations. This means your Form 1116 limitation calculations should indeed use your AMT-adjusted income figures rather than your regular taxable income. The reason the IRS instructions aren't more explicit about this is because they assume you understand that AMT creates a parallel tax calculation system. When Form 6251 adjusts your income by adding back certain deductions and making other modifications, those adjusted figures should flow through to all related forms, including the AMT version of Form 1116. A $2,700 difference is significant enough that I'd definitely recommend getting this right rather than just picking the software that gives the bigger refund. If you want additional confirmation, you might consider reaching out to a tax professional who specializes in international tax issues, or even contacting the IRS directly for guidance on your specific situation. The good news is that once you understand how this works, future years become much easier to handle!