@pk
Assuming (a) and (b) are true, however, the loss I am referring to is a net business loss, when business expenses (e.g. $15,000) exceeded business gross income (e.g. $10,000), which is reported on 1040 Schedule C line 31 as a negative number (e.g. -$5,000), and copied to 1040 Schedule 1, line 3. There are other income such as interest, dividends, and capital gains, which the loss from business could be fully netted against.
The net business loss comes from self-employment work abroad, and the taxpayer qualifies under either of the bona fide residence or physical presence test for foreign earned income exclusion.
A past election to exclude foreign earned income (gross business income) in a previous year requires that they also be excluded in subsequent years, unless the election is revoked.
Section 911(e)(1) Election:
An election under subsection (a) shall apply to the taxable year for which made and to all subsequent taxable years unless revoked under paragraph (2).
1040 Schedule 1, line 3, shows a negative -$5,000 business loss, which is a result of deductions (the business expenses) allocated to excluded gross income (the business gross income), and not allowed against other gross income (interest, dividends, capital gains).
Therefore, 1040 Schedule 1, line 8d, which is copied from 2555, line 45, needs to be an equal value of -$5,000 in parenthesis (double negative) to net against the amount on 1040 Schedule 1, line 3.
Section 911(d)(6) Denial of double benefits:
No deduction or exclusion from gross income under this subtitle or credit against the tax imposed by this chapter (including any credit or deduction for the amount of taxes paid or accrued to a foreign country or possession of the United States) shall be allowed to the extent such deduction, exclusion, or credit is properly allocable to or chargeable against amounts excluded from gross income under subsection (a).
Taxpayer enters $10,000 of gross business income (foreign earned income required to be excluded due to past election) on 2555, line 20a, and the value is carried down to line 43.
Taxpayer enters $15,000 of business expenses (the deductions allocated to excluded income) on 2555, line 44.
Line 45 is the result of line 44 subtracted from line 43 ($10,000 - $15,000), which should be -$5,000. However, the tax preparation software enters $0. When attempting to override the value, a warning message says that the value should be a positive number.
And so that is the problem.
