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tmclay
Returning Member

1116 foreign tax credit qualified dividends reduction schedule

I am figuring foreign tax credit for Vanguard dividends on Form 1116.   I work in Forms, not the Step by Step.  I understand that we have to adjust qualified dividend / capital gains.  In the past, it has always been to figure 40.54 percent of qualified dividends and capital gains (if in the 15 percent capital gains bracket), and enter that amount on line 1a.  This year, TT is entering only 36.2 percent of my gross qualified dividends / capital gains on line 1a.  I am in the 15 percent cap gains bracket.  Can anyone explain what is going on?  I read in another post of a different percentage reduction schedule, but the IRS has not changed the rate reduction schedule:  "To adjust your foreign source qualified dividends or capital gain distributions, multiply your foreign source qualified dividends or capital gain distributions in each separate category by 0.4054 if the foreign source qualified dividends or capital gain distributions are taxed at a rate of 15%, and by 0.5405 if they are taxed at a 20% rate. Include the results on line 1a of the applicable Form 1116."

 

Also on 1116, note that TT has always been incorrect on figuring Line 18.  Here, you also need to reduce your qualified dividends and capital gains.  Other income + 59.46 percent of qualified dividend and capital gains (if in the 15 percent bracket) = Line 18.  This may give you a larger allowable foreign tax credit.

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2 Replies

1116 foreign tax credit qualified dividends reduction schedule

In Forms Mode, bring up the f1116 worksheet. Scroll down to Part 1 (g)(1)(l), "Net Qual Dividends and LTGC." Put the pointer over the entry in Column A and right click. On the box that appears, click on "data source." Another box will appear with additional info.

 

With regard to line 18 on f1116, put the pointer on that line and right click and select "data source" as above. You can also do this manually using the worksheet in the f1116 instructions on p.23.

tmclay
Returning Member

1116 foreign tax credit qualified dividends reduction schedule

Thanks, that was very helpful.  This year I had some 0 percent qualified dividends / capital gains, and this changed the reduction calculations (which I could see following your advice).

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