Business & farm
It depends. Let's break this down. The adjustment exception for line 1a on Form 1116 involves the treatment of foreign qualified dividends and capital gains. If you have foreign qualified dividends or long-term capital gains, you may need to adjust these amounts before reporting them on line 1a. If you are under these reporting thresholds, you do not need to make an adjustment.
The adjustment is required if:
- You have foreign qualifying dividends or long-term capital gains totaling more than $20,000, OR
- Your total income exceeds certain thresholds based on your filing status. The thresholds are:
- $383,900 if married filing jointly or qualifying surviving spouse,
- $191,950 if married filing separately,
- $191,950 if single, or
- $191,950 if head of household.
To reduce the values of foreign qualified dividends for line 1a on Form 1116, you need to apply a specific percentage based on the tax rate applicable to those dividends. The IRS provides a reduction schedule that are on Line 18 of the worksheet. The adjustment reduction percentages are as follows depending what percentage rates your qualified dividends or capital gains were taxed. This is all in the Instructions for Form 1116 (2024).
This advice is true no matter what type of tax return you file. it is true for 1041 as well as for 1040's.
