Foreign Tax Credit Carryover: How Many Years?

Unused qualified foreign income tax can be carried back 1 year and then forward 10 years. Publication 514 (2025) says you treat that unused tax as if you paid it in the first preceding year, up to that year's excess limit, and only what is left moves forward.

In the publication's general-category illustration, $200 of unused tax from a year with a $300 limit and $500 of tax paid sends $100 back into the prior year, which had a $100 excess limit, and leaves $100 waiting on a later year with room. That leftover offsets a future U.S. tax bill only while the later year has excess limit in the same income basket. The ceiling that creates it is the foreign tax credit limit, which you figure on Form 1116.

How many years does a foreign tax credit carryover last?

IRS Topic No. 856 states the same clock: carry the unused foreign income tax back 1 year, then forward 10 years. That period is section 904(c) of the Internal Revenue Code. The 2025 Instructions for Form 1116 say to apply the excess to the earliest year it can reach, then the next earliest year, and so on. A year in the middle with no excess limit does not add time to the end of the period.

Excess limit is the gap the other way: the credit limit minus the qualified foreign tax you paid or accrued in that category. Unused tax lands only in a year that has that gap. A short tax year, anything under 12 months for which you file a return, still counts as a year on this clock.

Year in the IRS illustration	Credit limit	Tax paid	Unused tax or excess limit
2024	$200	$100	$100 excess limit
2025	$300	$500	$200 unused tax

Data note: both rows are Publication 514's Example 1, not a projection of your return. As of October 2026, the carry period itself is the rule in that edition and in Topic No. 856.

Use the oldest unused year first

A second illustration in the same publication shows why a quiet year still burns time. All of the income is general category. In 2021 the limit is $600 and the tax paid is $800, so unused tax is $200. There is no foreign income in 2020, so nothing carries back. In 2022 the tax paid is $700 against a $600 limit, and in 2023 it is $700 against a $500 limit, so neither year absorbs the 2021 balance. In 2024 the limit is $550 and the tax paid is $400, a $150 excess limit, and that absorbs $150. The last $50 is absorbed in 2025, where the limit is $800 and the tax paid is $700.

The 2021 dollars are gone by then, including through years that never lowered the U.S. tax. The unused tax from 2022 ($100) and 2023 ($200) still has its own, later expiration. Track each origin year on its own line.

Does the carryover stay in one income basket?

Yes. Publication 514 tells you to figure the carry separately for each separate-limit category, on its own Form 1116. Dividend withholding stays in the passive basket. Salary stays in the general basket. A later raise will not spend a dividend leftover, and a later fund distribution will not spend a salary leftover. File each basket with the rest of your expat tax and finance records so the two Schedule B balances never get added together.

The limit in each basket is your U.S. tax liability multiplied by foreign-source taxable income in that basket over your total taxable income. The credit can reduce U.S. tax on foreign-source income. It does not reduce U.S. tax on U.S.-source income, which is why a year of stateside wages often shows a limit of zero for this purpose and absorbs nothing.

Basket	What usually lands here	Carryover
General	Wages, salaries, overseas allowances, and active business income	Yes, inside this basket only
Passive	Dividends, interest, rents, royalties, annuities, and most mutual-fund foreign tax passed through on a 1099	Yes, inside this basket only
Foreign branch	Business profits of a qualified business unit abroad, excluding passive income	Yes, inside this basket only
Section 951A	Global intangible low-taxed income included by a U.S. shareholder of a controlled foreign corporation	No carryback and no carryover

Three more baskets that stay separate

Sanctioned-country income under section 901(j) gets its own Form 1116 for each country. A foreign retirement lump sum taxed with the special averaging method on Form 4972 gets its own computation. Certain U.S.-source income that a treaty treats as foreign source, if you elect that treaty position, gets its own limit for each amount from that treaty country. Publication 514 carves out the resourcing that comes only from the relief-from-double-taxation article aimed at U.S. citizens who live in the treaty country. Ordinary wage resourcing under that citizen rule is not, by itself, a reason to open a separate treaty basket.

High-taxed income is the quiet reclassification. If the foreign tax you paid on an item, after expenses, is higher than the highest U.S. tax that can be imposed on that item, Publication 514 says it is not passive. It falls into the general category. A retiree who assumes every dividend stays passive should test that kick-out before parking the withholding in the passive carryover.

What uses up the credit before year 10?

The 10-year window is the outer limit. Several ordinary choices shrink the balance sooner, sometimes to zero in the year the tax was paid.

Tax on excluded wages never enters the balance

Foreign tax on income you excluded under the foreign earned income exclusion or the foreign housing exclusion is not creditable, so it never becomes a carryover. Fully excluded wages take the entire foreign tax on those wages out of the credit. Partly excluded wages take out only the fraction that belongs to the excluded part. You can still claim the standard deduction in a year you exclude wages; that pairing changes taxable income before the fraction, which is why the foreign earned income exclusion and the standard deduction belong on the same worksheet.

Publication 514's cash-basis wages example uses foreign earned income of $175,000, unreimbursed business travel of $20,000, foreign tax of $30,000, and an exclusion of $130,000. Expenses allocable to the excluded wages are $20,000 × $130,000 / $175,000, which the publication computes as $14,857. The disallowed credit is $30,000 × $115,143 / $155,000, which the publication computes as $22,286. Only the rest of that $30,000 is even eligible to face the limit, and only an amount above the limit would become a carryover.

For tax years 2025 through 2028, the credit limit has one more adjustment. The 2025 Form 1116 instructions describe a $6,000 additional senior deduction for a taxpayer who is 65 before the end of the year, and the same figure for a spouse on a joint return who is also 65. It is reported on Schedule 1-A (Form 1040), line 37. Leave it off Form 1116 line 3b. On line 18, add that Schedule 1-A amount back to Form 1040 line 11b minus line 14. The add-back changes the limit, and the limit decides how much tax is unused.

• Choosing the deduction for the year, instead of the credit, blocks a credit for taxes carried into that year. You still compute the limit as if you had taken the credit. Any excess limit absorbs the incoming carryover even though you get no tax benefit from the amount absorbed.
• Publication 514's 2025 illustration: $600 of general-category tax paid, a $200 carryover from 2024, and a $700 limit. Taking the credit allows $700, of which $100 comes from the carryover, and $100 remains for 2026. Deducting instead allows a deduction of only the $600 paid that year, and still treats $100 of the old carryover as used because the unused limit is $100.
• The small-credit election blocks the year. It is available only when every dollar of foreign-source gross income is passive, the income and the tax show up on a qualified payee statement such as Form 1099-DIV or Form 1099-INT, and creditable foreign tax is not more than $300, or $600 on a joint return. Taxes paid in an election year cannot move to or from any other year, and a carry from a non-election year cannot move through the election year. The 10-year period is not extended to make up for it.
• Canceled debt in bankruptcy or insolvency can cut unused carryovers to or from that year by 33 1/3 cents for each $1 of canceled debt you exclude from income. A carryback into a year before the bankruptcy case began can also be barred. Publication 514 points that reduction to Publication 908.

How do you claim the carryback?

File Form 1040-X for the prior year and attach a revised Form 1116 for that category. The 2025 instructions put the carryback on that amended return. Leaving the full unused amount on the current-year form does not move it backward for you.

Cash-method filers claim the foreign tax in the year they pay it. Accrual-method filers claim it in the year it accrues, generally the last day of the foreign tax year, and that choice applies to every qualifying foreign tax. If you credit tax you have accrued and not paid, Publication 514 says the IRS can ask for an income tax bond without regard to the usual assessment clock.

Keep the running balance on Schedule B

The Instructions for Schedule B (Form 1116), revised December 2022 and still the instructions page for that schedule, are where the running balance lives. Use one Schedule B for each basket that has a carry. Line 6 is the carryover generated this year. Line 7, entered as a negative, is the part of line 6 you actually or expect to carry back. Line 8 is what remains for following years. In a later year, the amount you bring in on Form 1116 line 10 is Schedule B line 3, column (xiv).

1. Finish the current-year Form 1116 for that basket and see whether qualified tax is above the limit.
2. Apply the excess to the prior year first, up to that year's excess limit, and amend that year with Form 1040-X and a revised Form 1116.
3. Attach Schedule B for the current year if you created a new carryover or if you are using a carryover from an earlier year. If the only movement is a carryback into the current year and you do not otherwise need Schedule B, the 2025 instructions say you can skip Schedule B and check the box on line 10.
4. On next year's Schedule B, any remainder from the 10th preceding year that still has no excess limit expires on line 5. Column (i) of the schedule is that 10th preceding year.

When you carry tax back, the IRS gets extra time to assess tax that results from the carryback: up to 1 year after the normal assessment period for the year the carryback came from. Build the amended return while you still have the foreign assessment, the payment proof, and the exchange rate you used.

The 10-year refund clock is a different timer

Publication 514 gives you 10 years to claim a refund of U.S. tax if the foreign tax you paid or accrued was larger than the credit you originally claimed. The 10 years start the day after the regular due date of the return for the year the foreign tax was paid or accrued, with no extension added. The window covers a math fix, foreign tax you left off the original return, and any other change in the size of the credit, including a corrected limit. It also covers switching that year from a deduction to a credit.

Switching from the credit to a deduction is shorter: 3 years from when you filed, or 2 years from when you paid the tax, whichever is later. Publication 514's timing example is someone who deducted foreign taxes for 13 years and, in February 2025, amended 2014 to take the credit, still inside 10 years of the unextended 2014 due date. The unused 2014 tax has to be reduced by the carryback that would have fit in 2013.

What should you keep with the return?

On a joint return, unused tax and excess limit are computed on your combined income. On separate returns, each spouse uses only their own. If the carry chain mixes joint years and separate years, Publication 514 requires an allocation. For each basket, divide that spouse's foreign-source taxable income by the joint foreign-source taxable income in the basket, apply the percentage to the joint limit, and compare the result with the foreign tax that spouse actually paid. Do that before you assume a carryover from a joint year is entirely yours after a later separate return.

• A one-line note for each origin year: basket, tax paid, limit, amount carried back, amount still forward, and the year it will hit the 10th preceding column.
• The foreign tax assessment or withholding statement, and proof of payment if you are a cash-method filer.
• The Form 1116 and Schedule B you actually filed, not a spreadsheet that never made it onto the return.
• A flag on any year you deducted foreign tax or used the $300 / $600 election, because those years absorb or block a carry without giving you the credit.

If you are abroad and the carryback math is stuck, the 2025 Form 1116 instructions list a non-toll-free line, 267-941-1000, and a mailing address: Internal Revenue Service, International Accounts, Philadelphia, PA 19255-0725. Have the origin year and the basket in front of you before you call. The person on that line is not a substitute for the Schedule B you still have to attach.

Keep the basket, then file the carryback

Start with qualified tax above the limit, in one basket, after tax on excluded wages is removed. Send that excess to last year, up to last year's excess limit, and amend last year. Put only the remainder on the forward schedule, and keep the origin year on the schedule so the tenth year is visible before it arrives.

If last year has room, that carryback is the amount that can become a refund on Form 1040-X. The forward balance is the part you still have to prove when a later return finally has excess limit in the same basket.

Sources checked

• Publication 514 (2025), Foreign Tax Credit for Individuals, for the 1-year carryback, the 10-year carryover, the category rules, the worked illustrations, the excluded-wage fraction, and the refund period.
• Topic No. 856, Foreign tax credit, for the same carry period and the section 951A exception.
• 2025 Instructions for Form 1116, for line 10, the $300 / $600 election, the senior-deduction add-back, and the overseas phone line.
• Instructions for Schedule B (Form 1116), revised December 2022, for the running balance, line 5 expirations, and lines 6 through 8.
• Foreign Tax Credit – How to figure the credit, for the taxable-income fraction that sets the limit.

Data note: thresholds and form instructions were checked in October 2026 against the 2025 editions above. A later revision of Form 1116 can move a line number without changing the 1-year and 10-year statute.