Form 1116, Worksheet for line 18

[CraigWR]

On line 1 of the Worksheet for line 18 of Form 1116, why does TurboTax use taxable income (1040, line 15) instead of AGI with adjustments for Sched1-A (i.e., 1040, line 11b - 1040, line 14 + Schedule 1-A, line 37)?
The IRS instructions could be clearer, but (on pages 23-24 of the 2025 Instructions for 1116) they give specific directions for several lines of the Worksheet for line 18, NOT including line 1 and then say "complete all OTHER lines as instructed on the worksheet" (emphasis added). The Worksheet itself says "Individuals: Enter the sum of (i) Form 1040, 1040-SR, or 1040-NR, line 11b, minus Form 1040, 1040-SR, or 1040-NR, line 14; and (ii) Schedule 1-A (Form 1040), line 37." So why is TurboTax using taxable income instead?

I am required to adjust line 18 and I do not qualify for the adjustment exception. My tax computation uses the Qualified Dividends and Capital Gain Tax Worksheet.

It would be great if TurboTax showed its work. (I was only able to figure out TurboTax uses taxable income on line 1 of the Worksheet by working backward from TurboTax's entry on line 18 of 1116.)

[DaveF1006]

 Line 15 on the 1040 does take in account of AGI with adjustments for Sched1-A. Those adjustments are reported in Line 13b and are a part of the total on line 15.

The difference in the income is that If you are using the Qualified Dividends and Capital Gain Tax Worksheet, your "raw" income is adjusted because those specific types of income are taxed at lower rates (0%, 15%, or 20%). The IRS doesn't want you to treat income taxed at 15% the same as income taxed at 35% when calculating the limitation.

When you have qualified dividends, the IRS requires you to multiply those amounts by a fraction (like 0.4054 or 0.5405, depending on your bracket) before adding them back. TurboTax does this automatically without any participation on your part.

If TurboTax starts with your full AGI on Line 1 and then applies capital gain adjustments later, your Line 18 could end up lower than your real taxable income. That would limit your foreign tax credit more than it should. By starting with Line 15 (Taxable Income), TurboTax uses the same base the IRS counts as taxable income.

If the number on Line 18 is less than your Taxable Income on Form 1040, Line 15, that means TurboTax has already adjusted your dividends and capital gains using the multiplier, turning them into ordinary income. You do not and should not try to adjust the Line 1 amount to reflect a higher amount.

The reason why TurboTax doesn't show its work is because it adjusts these worksheets so that the numbers on Form 1116 match the tax liability shown on the Capital Gains Worksheet. The steps in the worksheets are just a way to get to the final result, not a detailed breakdown.

Note: If you want to verify the math exactly, look for the "Foreign Tax Credit Comp Wks".  If you choose to print your return, be sure to select that you wish to print a copy of your return plus all worksheets associated with it.