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rakhi.v, Tax Attorney
Category: Tax
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Experience:  Have graduated in Law with specialization & emphasis in Financial Laws and has working experience of over a decade.
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I have the same situation - regarding Simplified Limitation

Customer Question

I have the same situation - regarding Simplified Limitation Election for AMT. It's the first time that it's applicable. Since once I make the Election, I'm stuck with it, I want to make sure it's proper thing to do. I'm using Turbo Tax so I don't think Turbo Tax can handle the other method. AMT so confusing, can't tell if there's disadvantage to doing Simplified.
Submitted: 1 year ago.
Category: Tax
Expert:  rakhi.v replied 1 year ago.

Dear Friend,

Hello and welcome. Thank you for providing an opportunity to assist you.

By doing Simplified, you will not be able to do certain things. These are NOT disadvantages but some points to consider before you go for Simplified Limitation Election.

If you make this election:

  • You cannot carry over to or from any other year any foreign taxes paid or accrued in a tax year to which the election applies (but carryovers to and from other years are unaffected).
  • You are still required to take into account the general rules for determining whether a tax is creditable (eligible for a credit).
  • You are still required to reduce the taxes available for credit by any amount you would have entered on line 12 of Form 1116. Line 12 is related to foreign income excluded from US taxation, therefore not eligible for a credit.

So, if the above is fine with you and if you do not have any carryovers from other years, you can go for this election.

Though this is NOT the part of your original question, but as an additional information, let me point out that you are eligible for this selection ONLY IF:

  • All of your foreign source gross income was “passive category income” (which includes most interest and dividends).
  • All the income and any foreign taxes paid on it were reported to you on a qualified payee statement. Qualified payee statements include Form 1099-DIV, Form 1099-INT, Schedule K-1 (Form 1041), Schedule K-1 (Form 1065), Schedule K-1 (Form 1065-B), Schedule K-1 (Form 1120S), or similar substitute statements.
  • Your total creditable foreign taxes are not more than $300 ($600 if married filing a joint return).

The following IRS document is for your general reference and guidance.

http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Tax-Credit---Special-Issues

I am sure this would help. I wish you good luck.

You may please leave a positive rating if this helps as this is the only way we are compensated for assisting you. Alternatively, you may revert back with a reply if you need further assistance or if I have missed out on any aspect of your question.

Warm Regards,

Customer: replied 1 year ago.
I think you misunderstood my question as u did not answer it - I meet all the requirements (Passive, reported on K-1), except I paid over $600 in foreign taxes. Therefore, I know that I have to file Form 1116 and my credit is limited, and I have to carryover into next year.My question pertains to AMT - I'm not sure what factors to consider for Simplified Election for AMT purposes, as once you make this election you're stuck with it ??
Expert:  rakhi.v replied 1 year ago.

Dear Friend,

Hello and welcome again. Thank you for your reply.

No, you do not get stuck with that at all. The only thing is that once you select this, you are not allowed to claim a carryover or carry back for that year.

If you’re subject to the AMT, the alternative minimum tax foreign tax credit, AMTFTC, may be claimed for tentative minimum tax. The AMT foreign tax credit is similar to the foreign tax credit for regular income tax purposes, except that AMTFTC is used to reduce your tentative AMT tax. If you made an election to claim the foreign tax credit on Form 1040, without filing Form 1116 for regular tax purpose, your AMTFTC is the same as the foreign tax credit on Form 1040, line 47. Enter that amount on Form 6251, line 33. Since there is no foreign tax credit limitation and you cannot claim a carryover or carryback to that tax year.

Let me know if this helped or else I shall opt out and let someone else help you with this.

I am sure this would help. I wish you good luck.

You may please leave a positive rating if this helps as this is the only way we are compensated for assisting you. Alternatively, you may revert back with a reply if you need further assistance or if I have missed out on any aspect of your question.

Warm Regards,

Customer: replied 1 year ago.
I am limited. I have a big Carry forward of foreign taxes paid on Form 1116 for regular tax purposes. I think what you're saying is - if I want to use the AMTFTC and use Carry forward for AMT, then I should not elect the Simplified for AMT and instead should do the other method. As I suspect I'll have more Foreign Tax Credits in the future that I'll want to carry forward in the future, so best not to do Simplified for AMT but instead do the more complex one so I can use Carryforward. Please confirm. Thank you.
Expert:  rakhi.v replied 1 year ago.

Dear Friend,

Hello and welcome. Thank you for clarification.

Yes, this is exactly what I mean. Given your situation, carry forward is what you should use.

I am sure this would help. I wish you good luck.

You may please leave a positive rating if this helps as this is the only way we are compensated for assisting you. Alternatively, you may revert back with a reply if you need further assistance or if I have missed out on any aspect of your question.

Warm Regards,

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