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Screen 1116 - Foreign Tax Credit (1040)
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Refer to these related topics to learn more about Foreign 1040 returns.
Form 1116 - General Information
If you add units for an income category, they combine in 1 Form 1116. An AMT version of Form 1116 may calculate based on the information in the 1116 and 1116CO screens. The IRS accepts 1 Page 2 per category, so only 1 1116CO screen is available. In Part IV, Summary of Credits From Separate Parts III, the 1st printed Form 1116 unit completes.
Description
Enter the unit description. Note that when a 1116 screen generates from data in another screen, the following appear in the
Description
field: Passive income from B&D, if data is from the B&D screen; name of pass-through entity, if data is from K1 1065, 1120S, or 1041 activity; and payer’s name, if data is from the Broker screen.T, S, J
If you are linking this 1116 unit to Form 2555, be sure to enter the status code. You may link 1 Form 1116 to both taxpayer and spouse foreign activities (such as taxpayer and spouse W-2s).
Category of income
When a 1116 screen generates from data in the B&D or Broker screens, this field automatically displays
C
Passive category income.Description of income for line 1a
When a 1116 screen generates from data in the B&D or Broker screen, this field automatically displays "Dividends & Interest." When the generated 1116 screen is not the 1st 1116 screen for the category of income selected, the description from a pre-existing 1116 screen with the same category of income displays automatically.
Alternative method to determine compensation source - Statement
Enter the additional required alternative method information and calculations. (See Form 1116 instructions for details.) The supporting statement is printed with the return. Note that this field is not available when you select code
C
or G
in the Category of income
field.Alternative method to determine compensation source
Enter
X
to indicate the following: Form 1116, line 1a, is compensation for personal services as an employee; total compensation from all sources is $250,000 or more; and an alternative method is used to determine the compensation source. Note that this field is not available when you select code C
or G
in the Category of income
field.Delete on next year’s proforma
When a 1116 screen generates from data in the Broker screen, this field is marked automatically if it was also marked in the related Broker screen.
Part I - Foreign Income/Loss
Use this section to complete Form 1116, Part I. Use a separate unit of the 1116 screen for each country. For category of income G, lump-sum distributions (1040), only the
Foreign gross income
fields are available for data entry. Per IRS instructions, Form 1116, Part I, doesn't calculate for lump-sum distributions. The foreign amount you enter in the
Foreign gross income
fields reports directly on Form 1116, page 2, line 17, as the net foreign source of taxable income.Mutual fund or other regulated investment company (RIC) income
When this field is marked, "RIC" prints on Form 1116, Page 1, line i, instead of reporting on a country-by-country basis. Note that this field is inactive if data is present in the
Foreign source income is Section 863(b) income
or Country code/name
fields and completes automatically if it was also marked on the generating B&D or Broker screen.Foreign source income is Section 863(b) income
When this field is marked, "863(b)" prints on Form 1116, Page 1, line i, instead of reporting on a country-by-country basis. Note that this field is inactive if data is present in the
Mutual fund or other regulated investment company (RIC) income
or Country code/name
fields.Country code/name
These fields complete automatically from the generating B&D or Broker screen. If the foreign income is from various countries or Section 965, select
L-R
, choose the code OC
, then enter Other Countries
or 965
for the country name. If you mark the Mutual fund or other regulated investment company (RIC)
or Foreign source income is Section 863(b) income
field, the Country code/name
fields are inactive.Foreign activity form & unit#
When you enter data in these fields, Form 1116 accurately factors in amounts from elsewhere that affect the calculation of foreign gross income and expenses applicable to the foreign tax credit.
Foreign gross income
Data in this field overrides a calculated amount if the
Foreign activity form
& unit#
fields are complete. Enter foreign source qualified dividends and gains included on Form 4952, line 4g. Don't include other foreign capital gain amounts entered in this screen. For Category G Lump-sum distributions, enter here the foreign portion of the total lump-sum distribution that was reported on Form 4792. This foreign amount is reported on Form 1116, line 17 in lieu of completing line 2 of the Worksheet for Lump-Sum Distributions (referenced in the 1116 instructions).
Foreign short term.../Foreign long term
Enter long-term foreign capital gains less the number of foreign source gains included on Form 4952, line g. Enter a loss as a negative number.
Any foreign capital gain adjustments that calculate on the foreign capital gain/loss worksheets (Worksheets A and B in the Form 1116 instructions) adjust the foreign gross income amount on Form 1116, line 1a. Note that foreign qualified dividends in the
Foreign qualified dividends
field in the 1116 screen are considered a portion of the ordinary dividends included in the gross income in Form 1116, line 1a.When applicable, amounts in the
Foreign short-term capital gain/loss
and Foreign long-term capital gain/loss
fields in the 1116 screen are part of the foreign capital gain / loss worksheet calculations. Based on the worksheet results, Form 1116, lines 1a and 5, adjust as needed.note
If the total foreign capital losses on all screens 1116 exceed the capital loss limitation of $3,000 ($1,500 for married filing separately), you may need to adjust the input. Consider whether total foreign capital gains or U.S. capital gains would offset the foreign losses to within the allowed limit. Adjust the foreign capital losses on the 1116 screen as necessary.
Adjusted foreign capital gains (Force)
If capital gains need to be adjusted but the client doesn’t qualify to use Worksheet A or B to calculate the adjustment, follow the instructions for capital gains and losses in Publication 514. Enter the adjusted capital gains and losses here, and they report directly on Form 1116, line 1a.
Foreign qualified dividends
Foreign qualified dividends in this field are considered a portion of the ordinary dividends included in the
Foreign gross income
field. Form 1116, line 1a, adjusts as necessary based on the Form 1116 instructions. A not-required statement prints with the adjustment calculation details.Definitely related expenses
Entries override a calculated amount if the
Foreign activity form & unit#
fields have data. Open the statement to enter a description and amount. You may need to specially allocate state taxes paid if the state doesn't specifically exempt foreign source income from tax. See IRS Pub. 514, Determining Taxable Income From Sources Outside the U.S. section.Other interest (pro rata share of)
Other interest includes investment interest, interest incurred in a trade or business, and passive activity interest. This amount reports on Form 1116, line 4b.
Foreign source losses
Enter the amount of foreign source losses (other than foreign source capital losses in this screen) for Form 1116.
Parts II and III - Taxes Paid or Accrued and Adjustments
Use this section to complete Form 1116, Part II, and III. The calculation of credit uses amounts in U.S. dollars only. Note that only 1 Form 1116, Page 2, prints per income category. Don’t include taxes paid or accrued to sanctioned countries.
Date foreign taxes paid or accrued
If you want "1099 Tax" to print in Part II, column (l), enter
T
and leave all foreign currency amount/explanation fields blank. The 1099 tax applies if foreign tax paid on passive income reports in U.S. dollars on a Form 1099-DIV, 1099-INT, or similar statement. When a 1116 screen generates from B&D or Broker screen data, "1099 Tax" prints automatically.Explanation of foreign currency
Enter a detailed explanation of the conversion rate calculation for foreign taxes converted to U.S. dollars. Foreign taxes reflected in U.S. dollars on a Form 1099-DIV, 1099-INT, or similar statement don’t require conversion to foreign currency.
Reduction in foreign taxes
Entries in this field override a calculated amount if you entered information in the
Foreign activity form & unit#
fields. A statement prints showing the explanation and amount in this field, and the amount transfers to Form 1116, Page 2, Part III, Reduction in foreign taxes line.Adjustments
Enter the explanation and amount of any adjustments for inclusion on Form 1116, Part III, Adjustments line, for the category of income listed in the General Information section. See the instructions for details on the correct order for the adjustment calculations.
Section 960(c) limitation increase
Amounts you enter here are added across multiple units of the same category of income and included on Form 1116, Page 2. AMT Form 1116, if applicable, will default to the regular amount if you don't enter an amount in the
AMT, if different
field.