Deductions & credits

You will first enter the capital gain in the capital gain section of TurboTax as you would any other capital gain - this is how it becomes capital gain on your tax return.

To enter it on Form 1116 you re-enter it in the Foreign Tax Credit section of the program.  Here, it will not be used as income on your tax return, but will only be used in calculating your foreign tax credit and to complete the form.

You will navigate to Deductions & Credits, Estimates and Other Taxes Paid, and then Foreign Taxes.

Be sure to go through this form carefully but for most taxpayers reporting capital gains only the majority of the questions will not apply.  The main entries that will be important in your case are these:

• Answer Yes to the question Did you pay foreign taxes in 2019 or have credits to use from a prior year?
• Answer Yes to the question Have you already reported all of your foreign income and, if applicable, foreign taxes paid on interest, dividends or Schedules K-1?
• Choose Take a Credit when asked if you want to take a credit or deduction.
• Select Passive Income for the Income Type.
• Select your country or Various if there are more than three countries.
• Enter the amount of foreign income in the entry for "Total foreign income from all sources" (this may be equal to the capital gain).
• Enter the amount of the capital gain in the box "Foreign qualified dividends and l.t capital gains if the gain is long term. (It is okay if this is the same number as total foreign income.)
• Enter the amount of foreign tax paid.