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How to include capital gains in Line 3e on Form 1116?
In Instructions for Form 1116 (2024), it says:
Lines 3d and 3e
For lines 3d and 3e, gross income means the total of your
gross receipts (reduced by cost of goods sold), total capital
and ordinary gains (before subtracting any losses), and all
other income (before subtracting any deductions).
"total capital and ordinary gains (before subtracting any losses)" is what confuses me the most.
Let's suppose the following scenario:
1/1/2023: Buy a share of Company XYZ at $5
7/1/2023: Buy a share of Company XYZ at $15
1/1/2024: Buy a share of Company XYZ at $10
7/1/2024: Buy a share of Company XYZ at $20
8/1/2024: Sell all four shares of Company XYZ at $12
In this case:
Total Capital Gain/Loss: 12*4 - (5 + 15 + 10 + 20) = -2
Long-term Capital Gain/Loss: 12*2 - (5 + 15) = 4
Short-term Capital Gain/Loss: 12*2 - (10 + 20) = -6
In Form 8949, shares acquired through several different purchases can be combined into one row:
Stock acquired on various dates. If you sold a block of stock (or similar property) that you acquired through several different purchases, you may report the sale on one row and enter “VARIOUS” in column (b). However, you must still report the short-term gain (or loss) on the sale on Part I and the long-term gain (or loss) on Part II.
Therefore, in Form 8949, the transaction will be reported as follows:
Part I: Short-Term
2 shared of Company XYZ VARIOUS 8/1/2024 24 30 -6
Part II: Long-Term
2 shared of Company XYZ VARIOUS 8/1/2024 24 20 4
For this transaction, how much capital gain should be included in Line 3e on Form 1116?
Option 1: Treat blocks of shares of different holding periods differently
(12 - 5) + (12 - 10) = 9
Option 2: Use Form 8949 as the basis for calculation. According to some people that's how TurboTax calculates it.
4
Option 3: Treat the whole transaction as a whole
No capital gain is included in Line 3e on Form 1116 because it is capital loss as a whole
Which option is the correct way of including capital gains in Line 3e on Form 1116?
Thank you!