Form 1116 Slipover Calculator — Foreign Tax Credit & Carryover Tracker (2026)

What Is the Foreign Tax Credit (Form 1116)?

The Foreign Tax Credit (FTC) lets U.S. taxpayers reduce their U.S. tax liability by the amount of income tax they paid to a foreign country. The credit prevents double taxation — you don't pay tax on the same income to both the U.S. and a foreign government.

You claim the FTC by filing Form 1116, Foreign Tax Credit with your federal tax return. The form calculates your credit using a limitation formula that caps the credit at the U.S. tax rate on foreign-source income.

Who Needs to File Form 1116?

You generally must file Form 1116 if:

• Your foreign taxes exceed $300 ($600 if married filing jointly)
• You have foreign tax carryovers from prior years (even if below the threshold)
• Your foreign income is not all passive (wages, business income, etc.)
• You are claiming the credit for taxes paid to a foreign country (not just withholding)

If your foreign taxes are $300 or less ($600 for joint filers), all your foreign income is passive, and you have no carryovers, you can claim the credit directly on Form 1040 without filing Form 1116.

What Foreign Taxes Qualify for the Credit?

Not all foreign taxes qualify. The tax must be:

• An income tax (or a tax in lieu of income tax)
• Legally imposed on you by a foreign country or U.S. possession
• Actually paid or accrued during the tax year
• Not a tax on excluded income (like income excluded under the Foreign Earned Income Exclusion)

Foreign taxes that do not qualify include: sales taxes, value-added taxes (VAT), property taxes, and taxes on income that was not subject to U.S. tax.

Form 1116 vs. Form 2555 (Foreign Earned Income Exclusion)

You cannot claim the FTC and FEIE on the same foreign earned income. You must choose one. However, you can claim the FTC on foreign income that exceeds the FEIE limit or on foreign income that does not qualify for FEIE (like passive investment income).

Which should you choose? If your foreign tax rate is higher than your U.S. tax rate, the FTC typically provides more benefit. If you're in a low-tax country, the FEIE may be better. Use the FEIE vs. FTC Optimization Engine to compare both options side by side.

The "Slipover" Concept: Understanding Foreign Tax Credit Carryover

"Slipover" is a tax preparation term for a foreign tax credit carryover — the unused portion of foreign taxes that "slips over" to future years when current-year foreign taxes exceed the FTC limitation.

In simple terms: if you paid more foreign tax than the U.S. allows you to claim in a given year, the excess slips over to the next year. You track this excess on Schedule B (Form 1116) until it is fully used or expires.

Why Do Carryovers Happen?

Carryovers happen because the FTC limitation formula caps your credit at the U.S. tax rate on your foreign-source income. If your foreign tax rate exceeds the U.S. rate on that income, the excess cannot be claimed in the current year.

Example: You earned $100,000 in the UK and paid £20,000 in UK income tax. Converted to USD: $25,400. Your U.S. tax on that income is $17,400. The FTC limitation equals your U.S. tax ($17,400). You can only claim $17,400 of the $25,400 foreign tax. The remaining $8,000 becomes your carryover.

The Carryover Rules: 1 Year Back, 10 Years Forward

Unused foreign tax credits follow a strict timeline:

• Carryback: You must first carry the unused credit back 1 year to the prior tax year. This requires filing an amended return (Form 1040-X).
• Carryforward: Any remaining credit after the carryback carries forward up to 10 years from the year it was generated.
• Expiration: If the credit remains unused after 10 years, it expires and cannot be claimed.

Tracking Carryovers on Schedule B

Schedule B (Form 1116) is the official IRS form for tracking carryovers. It shows the running balance of your foreign tax carryovers across all years.

Each year, you report:

• Prior-year carryover balances (by year of origin)
• Current-year activity (additions from this year, reductions from usage)
• Ending balance (what carries forward to next year)

If you don't file Schedule B annually, you risk losing track of your carryovers and letting valuable credits expire.

Carryover Expiration Timeline — Visual Tracker

Use the expiration tracker below (generated automatically by the calculator) to see exactly when your carryovers expire. The tracker shows a 10-year timeline from the year of origin to expiration, so you never miss a deadline.

What Happens If You Don't Track Carryovers?

Failure to track carryovers can result in:

• Lost credits — you may miss the chance to use them before expiration
• IRS scrutiny — inconsistent carryover reporting can trigger audits
• Overpayment of tax — you pay more U.S. tax than necessary
• Amended return requirements — fixing errors requires filing Form 1040-X

Our Slipover Calculator handles all the tracking automatically. Enter your numbers once, and the calculator shows your current-year carryover, remaining balance, and expiration timeline — all in one place.

Form 1116 Income Categories — The "Baskets"

One of the most misunderstood aspects of Form 1116 is the requirement to file separate forms for each income category. The IRS calls these categories "baskets," and you cannot mix different types of income on the same Form 1116.

Why does this matter? Because the FTC limitation is calculated separately for each category. If you have both passive income (dividends) and general income (wages), you must file two separate Form 1116s — one for each category.

The Seven Income Categories

The IRS recognizes seven distinct income categories for Form 1116 purposes. Each category has its own rules and limitations.

#	Category	Income Types	When to Use
1	Passive Income	Dividends, interest, rents, royalties	Investment income from foreign sources
2	General Income	Wages, salaries, business income	Most common category for expats and business owners
3	Section 901(j)	Income from sanctioned countries	Taxes paid to countries subject to U.S. sanctions
4	Treaty Re-sourced Income	Income re-sourced under tax treaty	When a tax treaty allows re-sourcing of income
5	Foreign Branch Income	Business operations through foreign branch	Income from a foreign branch or permanent establishment
6	Section 904(d)(1)(H)	Certain securities sales income	Special category for specific securities transactions
7	Other Categories	Per IRS instructions	Any category not covered above

How to Determine Your Income Category

Follow these steps to classify your foreign income correctly:

1. Identify the type of income — Is it wages, dividends, business income, rent, or something else?
2. Check for passive vs. active — Passive income comes from investments where you don't materially participate. Active income comes from work or business operations.
3. Consider treaty benefits — If a tax treaty applies, you may need to use the treaty re-sourced category.
4. Check for sanctions — If the income is from a sanctioned country, use Section 901(j).
5. Separate by category — File a separate Form 1116 for each category of income.

Examples of Income Category Classification

Scenario	Income Type	Category	Rationale
US expat working in the UK	Salary from UK employer	General Income	Wages are active income, not passive
US investor with foreign dividends	Dividends from German stocks	Passive Income	Investment income is passive by definition
Business owner with UK branch	Business income from UK operations	Foreign Branch Income	Income from a foreign branch or PE
Rental property in Canada	Rental income from Canadian property	Passive Income	Rents are generally passive income
Income from sanctioned country	Income from Iran or North Korea	Section 901(j)	Sanctioned countries require separate category

What Happens If You Use the Wrong Category?

Using the wrong income category can have serious consequences:

• Incorrect credit amount — you may claim too much or too little credit
• IRS adjustment — the IRS may recalculate your credit and assess additional tax
• Audit risk — category errors are a common audit trigger
• Amended return — you may need to file Form 1040-X to correct the error

If you're unsure about your income category, consult a tax professional or use the IRS's Form 1116 instructions for guidance.

The FTC Limitation Formula — Step-by-Step

The Foreign Tax Credit limitation is the maximum amount of foreign tax you can claim in a given year. The formula prevents taxpayers from using foreign tax credits to reduce U.S. tax below the U.S. tax rate on foreign income.

Step-by-Step Calculation

Follow these four steps to calculate your FTC limitation manually:

Step 1: Determine Foreign Source Taxable Income

Start with your gross foreign-source income. Subtract deductions, losses, and expenses that are allocable to that foreign income. The result is your foreign source taxable income.

• Found on Form 1116, Part I, Line 7
• Example: $80,000 of foreign wages minus $10,000 in deductions = $70,000 foreign source taxable income

Step 2: Determine Worldwide Taxable Income

This is your total taxable income from all sources — both U.S. and foreign. Found on Form 1040, Line 15.

• Includes wages, business income, investment income, etc.
• Example: $70,000 foreign income + $110,000 U.S. income = $180,000 worldwide taxable income

Step 3: Determine U.S. Tax Liability

This is your total U.S. tax before credits. Found on Form 1040, Line 24.

• This is the tax you owe on your worldwide income
• Example: $42,000 U.S. tax liability

Step 4: Apply the Formula

Plug your numbers into the formula:

• ($70,000 ÷ $180,000) × $42,000 = $16,333
• This is your FTC limitation — the maximum credit you can claim

Real-World Example — Complete Walkthrough

Scenario: You're a US expat working in the UK. You earned $100,000 in UK wages and paid £20,000 in UK income tax. Converted to USD: $25,400. You also have $80,000 in US income. Your total worldwide income is $180,000, and your U.S. tax liability is $42,000.

Step	Calculation	Result
1. Foreign Source Taxable Income	UK wages	$100,000
2. Worldwide Taxable Income	UK wages + US income	$180,000
3. U.S. Tax Liability	Tax on worldwide income	$42,000
4. FTC Limitation	($100,000 ÷ $180,000) × $42,000	$23,333
5. Foreign Taxes Paid	UK tax paid	$25,400
6. Allowable Credit	Lesser of Step 4 or Step 5	$23,333
7. Carryover (Slipover)	Step 5 − Step 6	$2,067

Why the Limitation Exists

The FTC limitation serves three purposes:

1. Prevents tax avoidance — ensures taxpayers don't use foreign tax credits to eliminate U.S. tax on U.S.-source income
2. Maintains U.S. tax sovereignty — preserves the U.S. government's right to tax U.S.-source income
3. Limits credit to foreign income — ensures the credit only applies to income actually earned abroad

Common Limitation Formula Mistakes

Mistake	Why It's Wrong	How to Fix
Using gross income instead of taxable income	The formula requires taxable income (after deductions)	Subtract deductions allocable to foreign income
Using the wrong U.S. tax amount	Must use tax before credits (Line 24)	Don't use Line 16 (tax after credits)
Mixing income categories	Each category requires separate calculation	File separate Form 1116 for each category
Including non-taxable foreign income	Only taxable foreign income counts	Exclude FEIE income from foreign income

How the Calculator Handles the Limitation

The Slipover Calculator above automatically computes the FTC limitation using the verified 2026 formula. Simply enter:

1. Foreign taxes paid — from Form 1116, Part II, Line 8
2. Foreign source taxable income — from Form 1116, Part I, Line 7
3. Worldwide taxable income — from Form 1040, Line 15
4. U.S. tax liability — from Form 1040, Line 24

The calculator will instantly compute your limitation, allowable credit, and carryover amount.

Line-by-Line Form 1116 Walkthrough — With Real Numbers

Form 1116 has four parts plus Schedule B. Each part serves a specific purpose in calculating your foreign tax credit. This walkthrough follows a real example to show how each line works.

Example Scenario: US expat working in the UK with $100,000 in UK wages, $25,400 in UK taxes paid, $80,000 in US income, and $42,000 in total US tax liability.

Part I — Foreign Source Income (Lines 1a – 7)

Part I calculates your foreign source taxable income. This is the numerator in the FTC limitation formula.

Line	Description	Example Amount	Notes
Line 1a	Gross income from foreign sources	$100,000	UK wages before adjustments
Line 1b	Qualified dividend adjustment	$0	Only applies to foreign qualified dividends
Line 2	Deductions allocated to foreign income	$10,000	Allocable deductions
Line 3a – 3d	Gross-up for taxes paid	$0	Only for certain categories
Line 4 – 6	Losses and adjustments	$0	Enter losses if applicable
Line 7	Foreign source taxable income	$90,000	Line 1a − Line 2 (net of adjustments)

Important Notes for Part I:

• Line 1a adjustment (qualified dividends): If you have foreign qualified dividends, you must reduce the amount reported on Line 1a. The adjustment prevents double-counting of income taxed at the lower qualified dividend rate.
• Deductions: Only deductions that are allocable to foreign income should be subtracted. Common examples include foreign taxes, travel expenses, and business expenses.
• Losses: If you have a foreign loss, it reduces your foreign source taxable income and may create a carryover of its own.

Part II — Foreign Taxes Paid or Accrued (Lines 8 – 13)

Part II reports the foreign taxes you actually paid or accrued during the tax year.

Line	Description	Example Amount	Notes
Line 8	Total foreign taxes paid or accrued	$25,400	UK income tax converted to USD
Line 9 – 13	Adjustments and offsets	$0	For refunds, redeterminations, etc.

Key Points for Part II:

• Currency conversion: Foreign taxes must be converted to USD using the IRS annual average exchange rate or a date-specific rate.
• Accrual vs. cash basis: You can choose to report taxes on either a cash or accrual basis, but you must be consistent.
• Refunds: If you receive a refund of foreign taxes, you must reduce the amount reported on Line 8.

Part III — Figuring the Credit (Lines 14 – 22)

Part III calculates your FTC limitation and allowable credit. This is where the limitation formula is applied.

Line	Description	Example Amount	Notes
Line 14	Foreign taxes available for credit	$25,400	From Part II, Line 8
Line 15	Foreign source taxable income	$90,000	From Part I, Line 7
Line 16	Worldwide taxable income	$180,000	From Form 1040, Line 15
Line 17	Ratio (Line 15 ÷ Line 16)	0.50	50% of income is foreign-sourced
Line 18	FTC Limitation	$21,000	Line 17 × U.S. tax liability
Line 19 – 22	Adjustments and limits	$0	For AMT, high-tax kickout, etc.

Understanding Part III:

• Line 17 ratio: This ratio determines what percentage of your U.S. tax can be offset by foreign tax credits.
• Line 18 limitation: This is the maximum credit you can claim. If your foreign taxes exceed this amount, the excess becomes a carryover.
• Separate categories: You must complete a separate Part III for each income category (basket).

Part IV — Summary of Credits (Lines 23 – 32)

Part IV summarizes your allowable credit and carryover amounts.

Line	Description	Example Amount	Notes
Line 23	Foreign taxes available	$25,400	From Line 14
Line 24	Allowable credit	$21,000	Lesser of Line 14 or Line 18
Line 25 – 32	Carryover and reconciliation	$4,400	Carryover to future years

Part IV Key Points:

• Line 24 (Allowable credit): This is the amount you can actually claim on your tax return. It's the lesser of your foreign taxes paid or the FTC limitation.
• Carryover: If your foreign taxes exceed the allowable credit, the excess carries over to future years.
• Schedule B: You'll track the carryover on Schedule B and reconcile it annually.

Form 1116 Line Mapping — Complete Reference

Part	Lines	Description	Calculator Input
Part I	1a – 7	Foreign source income	Foreign source taxable income
Part II	8 – 13	Foreign taxes paid or accrued	Foreign taxes paid
Part III	14 – 22	FTC limitation calculation	Auto-calculated
Part IV	23 – 32	Summary and credit amount	Results displayed
Schedule B	(i) – (xiv)	Carryover reconciliation	Prior-year carryover

Special Adjustments: Line 1a, 3d & 18 — The Most Confusing Parts

Three lines on Form 1116 cause the most confusion and errors: Line 1a (qualified dividend adjustment), Line 3d (total foreign income), and Line 18 (capital gain adjustment). Understanding these adjustments is critical for an accurate FTC calculation.

Line 1a — Qualified Dividend Adjustment

What it is: Line 1a requires you to reduce the amount of foreign qualified dividends reported on Line 1a. This adjustment prevents taxpayers from receiving a disproportionate FTC benefit on income taxed at the lower qualified dividend rate.

Why it exists: Qualified dividends are taxed at a lower rate (0%, 15%, or 20%) than ordinary income. If you didn't reduce the foreign qualified dividend amount, you would be able to claim a credit based on the full dividend amount while only paying tax at the lower rate. The adjustment "grosses up" the dividend to what it would be if taxed at ordinary rates.

How to calculate Line 1a adjustment:

Example: You have $10,000 in foreign qualified dividends. Your ordinary tax rate is 24%, and your qualified dividend rate is 15%.

• Step 1: Qualified dividend rate ÷ Ordinary tax rate = 15% ÷ 24% = 0.625
• Step 2: 1 − 0.625 = 0.375
• Step 3: $10,000 × 0.375 = $3,750 adjustment
• Line 1a = $10,000 − $3,750 = $6,250

Line 3d — Total Foreign Income

What it is: Line 3d is the total of Lines 3a through 3c. It represents the "gross-up" of foreign income for taxes paid by a foreign corporation or for certain treaty benefits.

When it applies: Line 3d is typically used when:

• You receive dividends from a foreign corporation
• You make a Section 962 election
• You have treaty re-sourced income

How it works: When you receive a dividend from a foreign corporation, that corporation has already paid foreign tax on its income. You must "gross up" the dividend by the amount of foreign tax deemed paid. This increases your foreign source income and your FTC limitation.

Example: You receive $10,000 in dividends from a UK corporation. The corporation paid $2,000 in UK tax on the income that generated the dividend.

• Line 3a: $2,000 (foreign tax deemed paid)
• Line 3b: $10,000 (dividend income)
• Line 3c: Adjustments (if any)
• Line 3d: $12,000 (total foreign income)

Line 18 — Capital Gain Adjustment

What it is: Line 18 adjusts your foreign source income for capital gains that are taxed at preferential rates. Like the qualified dividend adjustment, this prevents disproportionate FTC benefits.

Why it exists: Long-term capital gains are taxed at lower rates (0%, 15%, or 20%) than ordinary income. Without this adjustment, taxpayers could claim FTC based on the full capital gain amount while paying tax at a lower rate.

When it applies: You must apply the Line 18 adjustment if:

• You have foreign source capital gains
• Those gains are taxed at preferential rates
• You have capital losses that reduce your capital gain income

How to calculate Line 18:

Example: You have $5,000 in foreign long-term capital gains. Your ordinary tax rate is 24%, and your capital gain rate is 15%.

• Step 1: Capital gain rate ÷ Ordinary tax rate = 15% ÷ 24% = 0.625
• Step 2: 1 − 0.625 = 0.375
• Step 3: $5,000 × 0.375 = $1,875 adjustment
• Your foreign income is reduced by $1,875 for FTC purposes

Comparison: Line 1a vs. Line 18 Adjustments

Feature	Line 1a	Line 18
Applies to	Qualified dividends	Long-term capital gains
Adjustment type	Reduces foreign dividend income	Reduces foreign capital gain income
Tax rate used	Qualified dividend rate	Capital gain rate
When required	Always for foreign qualified dividends	When foreign capital gains exist
Common mistake	Forgetting to apply the adjustment	Using wrong rate or not adjusting

When These Adjustments Don't Apply

You may not need to make these adjustments if:

• All foreign income is ordinary income (wages, business income, interest)
• You don't have foreign qualified dividends or capital gains
• You're using the simplified filing option (for low-income taxpayers)
• Your income falls in the 0% bracket for qualified dividends or capital gains

If you're unsure whether these adjustments apply to you, consult a tax professional or use the IRS's Form 1116 instructions for detailed guidance.

Foreign Tax Credit Carryover (Slipover) Tracker — Track Your Credits and Prevent Expiration

Tracking your foreign tax credit carryovers is essential to ensure you don't lose valuable credits to expiration. The IRS requires you to file Schedule B (Form 1116) annually to reconcile your carryover balances.

Our Slipover Calculator automatically tracks your carryovers and shows you exactly when they expire. But understanding how the tracking works helps you manage your credits more effectively.

How to Track Carryovers Manually

If you prefer to track carryovers manually, follow these steps:

1. Identify the year of origin — Each carryover is tracked by the year it was generated. For example, a carryover from 2025 is tracked separately from a carryover from 2026.
2. Record the carryover amount — The amount is the excess of foreign taxes paid over the FTC limitation for that year.
3. Track usage each year — When you use part of a carryover in a future year, reduce the balance by the amount used.
4. Monitor the 10-year expiration — Carryovers expire 10 years from the year of origin. Mark the expiration year on your calendar.
5. File Schedule B annually — The IRS requires Schedule B to be filed each year to report carryover balances.

Schedule B (Form 1116) — Complete Column Reference

Schedule B has fourteen columns that track your carryover activity. Here's what each column means:

Column	Purpose	What to Enter	Example
(i) through (vii)	Prior-year carryover by year of origin	Enter each prior year's carryover balance separately	2025: $8,000; 2026: $2,000
(viii)	Subtotal of prior-year carryovers	Sum of columns (i) through (vii)	$10,000
(ix)	Current-year additions	New carryover generated this year	$4,400
(x)	Current-year reductions	Carryover used in current year	$6,000
(xi) – (xiii)	Additional adjustments	Per IRS instructions (rarely used)	$0
(xiv)	Ending carryover balance	Balance to carry forward to next year	$8,400

Schedule B Reconciliation Example

Scenario: You have a $8,000 carryover from 2025 and a $2,000 carryover from 2026. In 2026, you generate a $4,400 new carryover. You use $6,000 of your total carryovers in 2026.

Column	2025 Carryover	2026 Carryover	Total
Prior balance	$8,000	$2,000	$10,000
Add: Current-year carryover	—	—	$4,400
Less: Current-year usage	$6,000	$0	$6,000
Ending balance	$2,000	$2,000	$8,400

Note: The $6,000 usage was applied to the oldest carryover (2025) first. This is required by IRS rules.

Carryover Expiration — What You Need to Know

Carryovers expire 10 years from the year of origin. This is a hard deadline — once a carryover expires, it cannot be claimed.

Example: A carryover generated in 2016 expires in 2026. You must use it before filing your 2026 tax return.

Visual Carryover Tracker — How to Use It

The calculator above generates a visual expiration timeline that shows:

• Year of origin — when the carryover was generated
• Current year — marked on the timeline for reference
• Expiration year — 10 years from the year of origin
• Years remaining — how many years you have left to use the credit
• Expired status — if the carryover has already expired

The timeline helps you plan ahead. If you see a carryover expiring soon, consider strategies to use it before the deadline.

Strategies to Use Expiring Carryovers

If you have carryovers approaching expiration, consider these strategies:

• Accelerate foreign income — If possible, recognize foreign income earlier to create additional U.S. tax liability that can be offset by the expiring credit.
• Delay deductions — Postpone deductions that reduce your U.S. tax liability to allow more room for the expiring credit.
• File an amended return — If you missed using a carryover in a prior year, you may be able to file Form 1040-X to claim it (within the statute of limitations).
• Change accounting methods — In some cases, changing from cash to accrual basis can help you time income recognition to use expiring credits.

What Happens to Carryovers When You File Form 1116

When you file Form 1116, the IRS expects to see:

1. All prior-year carryovers listed on Schedule B
2. Current-year carryover additions properly calculated
3. Current-year usage correctly applied (oldest first)
4. Ending balances that match your records

If your Schedule B doesn't reconcile properly, the IRS may flag your return for review. The Slipover Calculator automatically reconciles your Schedule B, so you can be confident your numbers are correct.

Country-Specific Examples — Form 1116 for UK, Germany, Japan, and Canada

Form 1116 applies differently depending on which country you paid taxes to. Each country has its own tax rates, treaties, and rules that affect your FTC calculation.

Below are examples for four common countries: United Kingdom, Germany, Japan, and Canada. These examples show how the FTC limitation and carryover calculation work in each context.

Example 1: US Expat in the United Kingdom

Scenario: US citizen working in London, earning £80,000 in UK wages. UK income tax paid: £16,000. Converted to USD (1 GBP = 1.27 USD).

Item	Amount	Notes
UK wages (GBP)	£80,000	Gross UK income
UK income tax (GBP)	£16,000	UK tax paid
UK wages (USD)	$101,600	£80,000 × 1.27
UK tax (USD)	$20,320	£16,000 × 1.27
Worldwide income (USD)	$181,600	$101,600 UK + $80,000 US
U.S. tax liability	$42,500	Tax on worldwide income
FTC Limitation	$23,777	($101,600 ÷ $181,600) × $42,500
Allowable credit	$20,320	Lesser of FTC limitation or foreign tax paid
Carryover	$0	No carryover (foreign tax below limitation)

Key Takeaway: In this example, the US expat's UK tax rate (20%) is lower than the US tax rate on the same income. The full UK tax is creditable, and no carryover is created.

Example 2: US Investor with German Dividends

Scenario: US investor receiving €50,000 in dividends from German stocks. German withholding tax: €10,000 (20% rate). Converted to USD (1 EUR = 1.08 USD).

Item	Amount	Notes
German dividends (EUR)	€50,000	Gross dividend income
German withholding tax (EUR)	€10,000	20% withholding tax
German dividends (USD)	$54,000	€50,000 × 1.08
German tax (USD)	$10,800	€10,000 × 1.08
Worldwide income (USD)	$154,000	$54,000 German + $100,000 US
U.S. tax liability	$36,000	Tax on worldwide income
Qualified dividend adjustment	$5,625	Line 1a adjustment (15% ÷ 24% = 0.625)
Adjusted German income	$48,375	$54,000 − $5,625
FTC Limitation	$11,316	($48,375 ÷ $154,000) × $36,000
Allowable credit	$10,800	Lesser of FTC limitation or foreign tax paid
Carryover	$0	No carryover

Key Takeaway: The qualified dividend adjustment (Line 1a) reduces the foreign income used in the FTC limitation formula. This is a critical adjustment for investors with foreign dividends.

Example 3: US Expat in Japan with Mixed Income

Scenario: US citizen working in Tokyo, earning ¥10,000,000 in wages and ¥1,000,000 in interest income. Japanese tax on wages: ¥2,500,000 (25%). Japanese tax on interest: ¥200,000 (20%). Converted to USD (100 JPY = 0.68 USD).

Item	Amount	Notes
Wages (USD)	$68,000	¥10,000,000 × 0.0068
Interest (USD)	$6,800	¥1,000,000 × 0.0068
Tax on wages (USD)	$17,000	¥2,500,000 × 0.0068
Tax on interest (USD)	$1,360	¥200,000 × 0.0068
Worldwide income (USD)	$154,800	$74,800 Japan + $80,000 US
U.S. tax liability	$36,500	Tax on worldwide income

Passive Income Category (Interest):

Item	Amount	Notes
FTC Limitation (Passive)	$1,604	($6,800 ÷ $154,800) × $36,500
Allowable credit	$1,360	Lesser of limitation or tax paid
Carryover (Passive)	$0	No carryover

General Income Category (Wages):

Item	Amount	Notes
FTC Limitation (General)	$16,038	($68,000 ÷ $154,800) × $36,500
Allowable credit	$16,038	Lesser of limitation or tax paid
Carryover (General)	$962	$17,000 − $16,038

Key Takeaway: When you have income in multiple categories, you must file separate Form 1116s for each category. Carryovers are tracked separately by category.

Example 4: Canadian Rental Property Income

Scenario: US taxpayer owns rental property in Canada. Canadian rental income: CAD 60,000. Canadian tax on rental income: CAD 12,000. Converted to USD (1 CAD = 0.73 USD).

Item	Amount	Notes
Rental income (USD)	$43,800	CAD 60,000 × 0.73
Canadian tax (USD)	$8,760	CAD 12,000 × 0.73
Worldwide income (USD)	$143,800	$43,800 Canada + $100,000 US
U.S. tax liability	$34,000	Tax on worldwide income
FTC Limitation	$10,351	($43,800 ÷ $143,800) × $34,000
Allowable credit	$8,760	Lesser of limitation or tax paid
Carryover	$0	No carryover

Key Takeaway: Rental income is generally passive income. The Canadian tax is fully creditable because it's below the FTC limitation.

Summary — Country-Specific Comparison

Country	Income Type	Foreign Tax	Allowable Credit	Carryover	Category
UK	Wages	$20,320	$20,320	$0	General
Germany	Dividends	$10,800	$10,800	$0	Passive
Japan	Wages	$17,000	$16,038	$962	General
Japan	Interest	$1,360	$1,360	$0	Passive
Canada	Rent	$8,760	$8,760	$0	Passive