Further to my above post, I found the following explanation by @pk that supports the idea of including only the expenses allowed under the laws of the foreign country on the line 2, 1116:
"...one point one needs to remember is that Foreign Net Rental income ( IRS sometime calls it Gross Rental income ) is Total Rental income LESS deductions allowed under the laws of that country ( which may or may not be the same as US version ). The logic behind this is that your net foreign rental income is based on local laws --that is what you received as foreign income."
https://ttlc.intuit.com/community/tax-credits-deductions/discussion/form-1116-line-3e-from-rental-in...
