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Question

How does UltraTax CS calculate the amount of gross income from sources within the country on line 1a of Form 1116?

Answer

In general, the amount on line 1a of Form 1116 will equal the total income from the category of income indicated in lines a through d and the country indicated in line g of Form 1116. Per the Form 1116 and Form 6251 instructions, however, line 1a of Form 1116 can be affected by a few different factors. Refer to the appropriate section below for information on how UltraTax CS calculates the amount reported on line 1a of Form 1116.

Qualified dividends and capital gains

Per the Form 1116 instructions, if the Qualified Dividends and Capital Gain Tax Worksheet is generated and the taxpayer is not required to file Schedule D, an adjustment may need to be made to the foreign source qualified dividends and capital gain distributions.

If the taxpayer meets both of the following requirements, UltraTax CS will automatically adjust the amount of foreign qualified dividends and capital gain distributions included in line 1a in accordance with the Form 1116 instructions.

• Line 7 of the Qualified Dividends and Capital Gain Tax Worksheet is greater than zero, and
• Line 25 of the Qualified Dividends and Capital Gain Tax Worksheet is less than line 26 of that worksheet.

Adjustment calculation

The calculation of the adjustment depends on the rate at which the foreign source qualified dividends or capital gain distributions are taxed.

• For those taxed at a rate of 0%, do not include the distributions on line 1a.
• For those taxed at a rate of 15%, multiply the foreign source qualified dividends or capital gain distributions in each separate category by 0.4054.
• For those taxed at a rate of 20%, multiply foreign source qualified dividends or capital gain distributions in each separate category by 0.5405.
• Do not adjust any foreign source qualified dividends or capital gain distributions that are included on Form 4952, line 4g.

Note: A Not Required Statement is generated showing the calculation of line 1a. To view this statement, preview or print the return. The calculation of includable capital gains is shown on Form 1116, Worksheet A or B, located under the 1116Wrk folder in Forms View. Show statement

Adjustment exception

If both of the following apply, the taxpayer qualifies for an adjustment exception and the foreign source qualified dividends and capital gain distributions do not have to be adjusted.

• Line 7 of the Qualified Dividends and Capital Gain Tax Worksheet does not exceed the applicable filing status threshold listed in the Form 1116 instructions.
• The amount of your foreign source capital gain distributions, plus the amount of your foreign source qualified dividends, is less than $20,000.

  Note: For this purpose, ignore any capital gain distributions or qualified dividends included on Form 4952, line 4g.

Calculation of AMT Form 1116, line 1a

Per the Form 6251 instructions, the foreign source qualified dividends must be adjusted if both of the following apply:

• Line 38 of Form 6251 is smaller than line 39, and
• Line 17 of Form 6251 is greater than zero.

An adjustment exception can be made if both of the following apply:

• The adjustment exception conditions for the regular Form 1116, outlined above, are met, and
• Line 17 of Form 6251 is not more than the applicable filing status threshold. (See the Form 6251 instructions).

  Note: To determine the $20,000 threshold under the adjustment exception, use the capital gains and losses as refigured for the AMT.

The calculation for line 1a adjustments to foreign source qualified dividends and capital gain distributions on AMT Form 1116 are as follows:

Note: A Not Required Statement is generated showing the calculation of line 1a. To view this statement, preview or print the return. The calculation of includable capital gains is shown on Form 1116, Worksheet A or B, located under the 1116Wrk folder in Forms View. Show statement

Form 2555 Foreign Earned Income Exclusion

Per the Form 1116 instructions, any amount of foreign income excluded on Form 2555 should not be included on line 1a of Form 1116. Refer to 1040-US: Preparing Form 1116 with Form 2555.

Related topic: Foreign tax credits and earned income FAQs (1040)

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