Hi. The adjustment is correct on line 1a. Please see the following explanation.
According to the instructions for Form 1116, Foreign Tax Credit, page 7, If you have foreign source qualified dividends or foreign source capital gains (including any foreign source capital gain distributions) or losses, you may be required to make certain adjustments to those amounts before taking them into account on line 1a (gross income) or line 5 (losses).
Foreign Source Qualified Dividends and Gains
If you have received foreign sourced qualified dividends and/or capital gains (including long-term capital gains, unrecaptured section 1250 gain, and/or section 1231 gains) that are taxed in the U.S. at a reduced tax rate, you must adjust the foreign source income that you report on Form 1116, Foreign Tax Credit (Individual, Estate, or Trust), line 1a.
How do I make the adjustment?
- Form 1116 Instructions - See the detailed instructions for “Foreign Qualified Dividends and Capital Gains (Losses)”.
- Generally, if the foreign source income was taxed at the 0% rate, then you must exclude the income from your foreign source income (Form 1116 line 1a).
- Generally, if the foreign sourced income was taxed at the 15% rate, then you must multiply that foreign sourced income by 0.3788 and include only that amount in your foreign source income on Form 1116, line 1a.
- Generally, if the foreign source income was taxed at the 20% rate, then you must multiply that foreign source income by 0.5051 and include only that amount in your foreign source income on Form 1116, line 1a.
- See Publication 514, Foreign Tax Credit for Individuals, for more information on the rate differential adjustment.
https://www.irs.gov/pub/irs-pdf/i1116.pdf
