Bug: If a taxpayer claims both the Foreign Earned Income Exclusion (FEIE) and/or Foreign Housing Exclusion (FHE) and Foreign Tax Credit (FTC), TurboTax does not allow sourcing Foreign Earned Income (reported on Form 2555) to two or more countries on Form 1116 Part 1.
TurboTax hard-codes 1116 Line 3d = [1116 Line 1a (before rate differential adjustment)] + [2555 Line 45], if a 2555 copy is selected in the "Income Excluded on Form 2555 Smart Worksheet".
If TurboTax's "Income Excluded on Form 2555 Smart Worksheet" is assigned to two or more countries, then:
(1) the entire unexcluded current-year FEI is duplicated in each country on 1116 Line 1a; and
(2) the entire excluded FEI is duplicated in each country on 1116 Line 3d.
If TurboTax's "Income Excluded on Form 2555 Smart Worksheet" is not used, then the correct FEI can be entered manually per country on 1116 Line 1a (via the "1116 Comp Wks"). However, because 1116 Line 3d is automatically calculated (See formula above), there is no way to add back the excluded FEI (2555 Line 45). This results in the incorrect apportioning of deductions between different countries.
TurboTax's decision to compute 1116 Line 3d by "adding back" excluded FEI is a very poor architectural choice to arrive at pre-exclusion gross foreign source income. This is a poor choice specifically because the FEIE and FHE may need to be attributed differently to multiple countries based on ratios of FEI from employment versus self-employment.
Anyone (for instance, a digital nomad), performing services in two or more countries with the income level and choice to claim both the FEIE and FTC, is currently forced to use manual overrides that prevent e-filing.
