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Capital Gains

Form 1116, line 1a, calculation

In general, the amount on line 1a of Form 1116 equals 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, a few different factors can affect line 1a of Form 1116. Refer to the following sections for information on how UltraTax CS calculates the amount reported on line 1a of Form 1116.
note
If the amount on line 1a is negative, review the data entry on the
B&D
 screen or the
Broker
 screen in the
Income
 folder. A negative amount on line 1a of Form 1116 usually happens when the amount of foreign qualified dividends exceeds the amount of foreign gross income reported on the 1116 screen in the Credits folder.

Qualified dividends and capital gains

Per the Form 1116 instructions, if the Qualified Dividends and Capital Gain Tax Worksheet generates and the taxpayer doesn't need to file Schedule D, you may need to make an adjustment to the foreign source qualified dividends and capital gain distributions.
If the taxpayer meets both of the following requirements, UltraTax CS automatically adjusts 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 0, 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 tax rate of the foreign source qualified dividends or capital gain distributions.
  • For those taxed at a rate of 0%, don't 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.
  • Don't adjust any foreign source qualified dividends or capital gain distributions included on Form 4952, line 4g.
note
A Not Required Statement generates, showing the calculation of line 1a. To view this statement, preview or print the return. The calculation of includable capital gains is displayed on Form 1116, Worksheet A or B, in the
1116Wrk
 folder in Forms View.

Adjustment exception

If both of the following apply, the taxpayer qualifies for an adjustment exception, and you don't need to adjust the foreign source qualified dividends and capital gain distributions.
  • Line 7 of the Qualified Dividends and Capital Gain Tax Worksheet doesn't exceed the 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.

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