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December 16, 2019

Excess Foreign Tax Credits - What to do about it?

If you live in a high tax country as an expatriate and you end up with excess foreign tax credits that cannot be used to offset the tax on the same income on your US Income Tax Return, all is not lost.
Excess foreign tax credits carry over and can be used for 10 years into the future on your returns assuming you do not have enough foreign tax credits to offset the tax on your foreign income.  See the instructions to the IRS foreign tax credit form 1116.

The best solution to recover your foreign taxes when you have excess foreign tax credits, is to move to a low tax country and you can then use them.  A list of countries in the world including the highest personal income tax rate for each country is HERE   You can use this to plan for the future use of excess foreign tax credits that are carried over.

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