A foreign tax credit carryover is foreign tax you paid but could not use because it exceeded the US tax on that income. Unused credit goes back one year and then forward ten, staying in its original category, and it is tracked on Schedule B of Form 1116. For Americans in Britain, it is where excess UK tax quietly accumulates. Double taxation relief depends on tracking it.
Most expats in the UK generate excess credit every year, because UK rates on salary usually exceed US rates. Few ever use it, because they never have the low-taxed foreign income it can offset. Knowing when a carryover is worth something — and when it is not — is the whole skill.
How the foreign tax credit carryover works
IRS Publication 514 sets out the sequence. Unused foreign taxes are first carried back to the preceding tax year and claimed there if that year has room under its limit; anything still unused is carried forward to the ten years that follow the year the tax arose.
| Rule | What it means |
|---|---|
| Carryback | 1 year, applied first |
| Carryforward | 10 years after the year the tax arose |
| Category | Stays in its original basket — general, passive or another |
| Usage order | Current-year tax first, then carryovers from the oldest year |
| Deduction years | No carryover can be used in a year you deduct foreign tax instead of crediting it |
| Reporting | Schedule B (Form 1116), one for each category with a carryover |
Why the category matters most
Credits are limited category by category. UK tax on your salary sits in the general category and can only ever offset US tax on general-category foreign income. UK tax on dividends, interest and most gains sits in the passive category.
That is why a large general-category carryover is often worth nothing in practice. If all your foreign earned income is taxed more heavily in the UK than in the US, there is never spare general-category limitation to absorb the excess, and it expires unused after ten years. The mechanics of the limit are in Form 1116 explained.
Schedule B of Form 1116
The Instructions for Form 1116 require Schedule B to reconcile your prior-year carryover with your current-year carryover. It tracks each year's unused tax, what was used, what expired and what carries on, separately for each category.
A worked example makes the mechanics concrete. Say UK tax on your 2025 salary exceeds the US tax on it by $4,000. That $4,000 is first carried back against any unused general-category limitation in 2024; if 2024 had none, it becomes a general-category carryover available from 2026 to 2035. In each of those years it is used only after that year's own UK tax, and only if general-category foreign income leaves room under the limit. The figures are illustrative, but the sequence is exactly what Schedule B records.
Returns prepared without it lose the history. A carryover that was never recorded cannot easily be claimed later, and rebuilding ten years of figures from old returns is slow and expensive. If you have been generating excess credit, Schedule B is what preserves it.
Claiming the foreign earned income exclusion interacts with the credit: you cannot credit foreign tax on income you excluded. Switching between the exclusion and the credit changes both the current year and how much carryover is created.
When a carryover becomes valuable
An excess credit only helps when a later year has foreign income taxed more lightly abroad than at home. For Americans in Britain, the realistic triggers are:
- A move to a lower-tax country. Carryovers created in the UK can offset US tax on general-category income earned later somewhere with lower tax, within the ten-year window.
- A year of low UK tax. Large pension contributions or reliefs can drop UK tax below US tax for a year, opening room to use a carryover.
- Passive income taxed lightly in the UK. ISA income is not taxed in the UK at all but is taxed by the US; passive-category carryovers from taxed UK investments can absorb that US tax.
- A property sale. UK capital gains tax on a sale creates passive credits, but a later passive gain with less UK tax can use them.
The flip side is a move back to the United States. US-source income cannot use a foreign tax credit at all, so carryovers generally lie idle from the day you return — the timing issues are covered in moving back to the US from the UK.
Carryovers and the choice of relief
Because excess credit accumulates, a foreign tax credit strategy is a multi-year decision. Claiming the credit each year builds a store of carryovers that can protect later income; claiming the exclusion creates none. The comparison is in FEIE versus the foreign tax credit, and the UK taxes that feed the calculation are listed in which UK taxes count for the foreign tax credit.
Tranzesta keeps a running Schedule B for every client with excess credit, so carryovers are used before they expire rather than discovered after. Book a consultation if your returns have never tracked them. The US return side sits within US expat tax returns.
Frequently Asked Questions
How long can I carry forward an unused foreign tax credit?
Ten years. Under the rules in IRS Publication 514, unused foreign taxes are first carried back one year and then carried forward to the ten years following the year the tax arose. Anything not used by the end of that period expires.
Can I use a general-category carryover against passive income?
No. Carryovers keep their original category. Excess UK tax on salary is general-category and can only offset US tax on general-category foreign income, while excess tax on dividends, interest and gains is passive-category and can only offset US tax on passive foreign income.
What is Schedule B of Form 1116?
Schedule B is the schedule used to reconcile your prior-year foreign tax carryover with your current-year carryover. It records, by category and by year, the unused foreign tax created, used, expired and carried forward, and it is required whenever you have a carryover to report.
Can I use carryovers after moving back to the United States?
Only against foreign-source income. The foreign tax credit, including carryovers, can only offset US tax on foreign-source income in the matching category. Once your income is US-source — a US salary, for example — the carryover generally cannot be used, although it remains available within its ten-year window if foreign income arises again.
What happens to carryovers if I claim a deduction for foreign taxes?
You cannot use carrybacks or carryovers in any year in which you deduct foreign taxes instead of claiming the credit. The carryover period still runs during that year, so switching to the deduction can cause older carryovers to expire unused.
Do carryovers help an American moving from the UK to Dubai?
Potentially, yes. The UAE levies no personal income tax, so US tax on UAE salary has no current foreign tax to offset it. Unexpired general-category carryovers built up from UK tax can absorb that US tax if the foreign tax credit is claimed rather than the exclusion, which can make the first years in Dubai far cheaper.
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