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I have been deducting foreign taxes on Schedule A for years. Now I want to take it as a credit using Form 1116. Is there any problem with making this change for 2017?
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No. You don't provide any other information, but I wonder why you've been taking the Schedule A route in the past. Other than simplicity, it's usually better to take a credit than a deduction.


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Logic would seem to dictate that a credit should be better, but some goofy things can happen with foreign taxes. In recent years, I started to consider the deduction route with some clients, but it wouldn't have worked for them either, because the itemized deduction would have been an add-back for AMT.

What caused that situation is that a number clients had a perennial buildup of unused credits because the credit is limited to the US tax on the foreign income. And where the foreign tax on dividends is 15%, and the US tax on qualified dividends is 15%, you should come out OK, or at least close. But if your US tax on qualified dividends is 0%, or something between 0% and 15%, you're going to have an unused credit, maybe every year. So somewhere you might get frustrated and prefer to take a deduction, and at least get some benefit, and it's a whole lot simpler. But, as I mentioned, even that doesn't work where AMT applies.

As Ira alluded to,if your total foreign tax is withholding on interest or dividends, and it's less than $300 single or $600 on a joint return, then you can elect to just take it all as a credit, with no carryovers or carrybacks to or from the current year, without doing a Form 1116.

Bill
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