@VickiN , the requirement to adjust the foreign income is generally not applicable to most. This is used to adjust the foreign source income in cases when the treaty between US and the foreign country limits the tax rate applicable --- thus if a country says that Capital gain is taxed in that country at 10% and the USA cannot tax this foreign sourced income at more than 10% then you have to adjust the income such that effective US tax rate for this foreign sourced income comes down to 10% or lower. IRS has information on this as to how to adjust.
Therefore the questions to you :
1. are you US citizen/Resident/Resident for tax purposes
2. What is the capital gain for -- realestate, stocks/bonds or what
3. Which country are we talking about , did you receive a preferential treatment on this income because of residency/citizenship
4. etc. etc
