A U.S. citizen accrued $120,000 of creditable foreign taxes last year. The citizen's foreign tax credit limitation for last year is $90,000 (only a single limitation need be calculated). The excess foreign tax credit limitation for the year preceding the year in which the excess foreign taxes were incurred is $2,000. A similar $2,000 excess foreign tax credit limitation position is expected in each of the next 10 years. What portion of the excess foreign taxes can be expected to be noncreditable because of the foreign tax credit limitation?
A)$0
B)$2,000
C)$8,000
D)none of the above

Question

Quizplus · Accepted Answer

The excess foreign tax credit limitation from the year preceding the year in which the excess foreign taxes were incurred can be used to offset current year foreign taxes that exceed the foreign tax credit limitation. Therefore, $2,000 of the $120,000 excess foreign taxes can be offset in the current year, leaving $118,000 of excess foreign taxes. This excess foreign tax credit limitation position is expected to continue in each of the next 10 years, which means a total of $20,000 can be used to offset future excess foreign taxes. Thus, the noncreditable portion of the excess foreign taxes is $118,000 - $20,000 = $98,000.

A US Citizen Accrued $120,000 of Creditable Foreign Taxes Last Year