What are the rules for Form 1116 foreign income credit carry back and carry forward?

For Form 1116, the foreign tax credit carryback and carryforward rules allow taxpayers to carry excess foreign taxes back 1 year and forward up to 10 years. This applies to foreign taxes paid or accrued on income in a separate category that exceeds the foreign tax credit limitation. The carryback and carryforward must be applied in chronological order—first to the earliest year, then to the next, and so on. The carryback-carryforward period cannot be extended even if a credit cannot be used in an intervening year.

Carryback and Carryforward Rules

• Carryback: You may carry back excess foreign taxes to the prior tax year. If you carry back to a year in which you claimed a deduction for foreign taxes instead of a credit, you cannot use the carryback for that year. However, you must reduce the carryback amount by what you would have used if you had claimed a credit instead of a deduction.
• Carryforward: Unused foreign taxes can be carried forward for up to 10 years. The amount carried forward is reported on Form 1116, Part III, line 10, and is derived from column (xiv) of Schedule B (Form 1116), line 3.
• Restrictions: Carrybacks and carryforwards are not allowed for foreign taxes paid on section 951A category income. Additionally, if you elected to claim the foreign tax credit without filing Form 1116 (for passive income under $300/$600), no carrybacks or carryforwards are permitted for that tax year.
• Special Rules for Pre-2018 Taxes: Unused foreign taxes from pre-2018 are generally allocated to the post-2017 general income category. Alternatively, they may be allocated to the post-2017 foreign branch category income, subject to specific allocation rules or a simplified safe harbor under Regulations section 1.904-2(j)(1)(iii).

Reporting Requirements

• Attach Schedule B (Form 1116) to your Form 1116 if you enter a carryover on line 10 or generate a new carryover in the current year. Schedule B reconciles prior-year carryovers with current-year activity.
• Line 3 of Schedule B combines the prior-year carryover (line 1) with adjustments (line 2) to determine the adjusted carryover available for the current year.
• Line 6 of Schedule B shows the foreign tax carryover generated in the current year, which can be carried back (line 7) or carried forward (line 8).

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Disclaimer: Always verify details with the current Federal or State Department of Revenue Forms and Instructions. For complex situations, consult a CPA or tax attorney.