[bcsimmons]

I have a question about the foreign tax credit. Say, for example, I had $1000 in foreign-source interest income in 2009. I paid $200 in foreign taxes on this income. However, I don't have a US tax liability because the $1000 is covered by my standard deduction/personal exemption. Can I take the $200 in foreign taxes as a credit and carry them over to 2010?

[wnhough]

QUOTE,"However, I don't have a US tax liability because the $1000 is covered by my standard deduction/personal exemption. Can I take the $200 in foreign taxes as a credit and carry them over to 2010?"--- As you know, income tax systems of foreign tax credit is to mitigate the potential for double taxation.IN this case, you do not pay any cent on your foreign source passive income, interest of $1,000, so there is no double taxation in this situation because the passive income is not subject to U.S. tax.And you may not take either a credit or a deduction for taxes paid ,$200, the amount of foreign tax liability.

[bcsimmons]

But it is allowed to carry forward foreign tax credits for 10 years. Wouldn't that apply here?

[AtlantaTaxExpert]

Maybe, IF you have U.S. tax liabilities at some future date.

[bcsimmons]

Thanks for answering. I DO have a tax liability from foreign source passive income in 2010 (I'm filing late). From my understanding of the foreign tax credit instructions, if I had had a US tax liability of $100 on the foreign income in 2009 and paid $200 in foreign taxes on it, then I could carry $100 forward to the next year. My question is. If I had a US tax liability of 0$ on the income but paid $200 in foreign taxes on it, can I carry the $200 forward to 2010?

[MukatA]

Yes, you can carry forward the un-utilized foreign tax credit. For this you must file 2009 tax return and Form 1116.
You can use credit in 2010. But note that it can only be used for your foreign income, and can not be used for taxes on your U.S. source income.