My son has lived and worked outside the U.S. for 10 years. He currently has $36,000 worth of carryover foreign tax credits
. He has been filing
a Form 1116
carryover statement with his tax returns
each year while he was utilizing the oldest credits
first to offset his tax
. He never used the Form 2555
exclusion of his foreign earned income
during that period, because he was able to offset his tax utilizing his accumulated foreign tax credits.
This year he is working in a different country and no longer pays foreign tax. He would like to exclude his foreign earned income using Form 2555 instead of using his carryover foreign tax credits to offset tax on that income
Question 1. Will he automatically lose the remaining carryover $36,000 foreign tax credits if he switches to the Form 2555 exclusion of his foreign-earned income?
Question 2. If the credits are not automatically lost, should he still file the Form 1116 carryover statement each year even though he is using the 2555 exclusion to offset his taxable income
, and therefore is not utilizing the credits?
Question 3. Is there an advantage in using the carryover credits to offset his US
tax on his income rather than excluding his income using Form 2555?
Question 4. If using Form 2555 doesn't automatically make the accumulated foreign tax credits disappear, is it still necessary to file the Form 1116 carryover statement each year with his future returns
so as to prevent the credits from being lost, in case he returns to work in the US in the future at which point the credits would be useful if they haven't yet expired?