Does Form 1116 Line 18 calculate correctly? The IRS instructions allow adjustments to be made for qualified dividends yet the system does not appear to do this. Thoughts?

[jdp852]

I am in the process of preparing my 2023 tax return and came upon this chain of messages.  I likewise have an issue with line 18.  Based on my situation I know that I must use the worksheet to calculate the amount for line 18.  I have been using Turbotax (desktop version) for many years and every year I prepare the worksheet and manually override the amount on line 18.  In my situation the rational for needing to complete the worksheet is very straightforward.  I would think that Turbotax could use the same logic and automatically make the necessary calculations so that the amount on line 18 is correct.

[LillyChang]

Hi,

I need help as a first-time user. I have 1116 forms for the General income category and Passive income category.

Reviewing generated 1116 forms I saw line18 does not have a worksheet, even though I know I do have to make adjustments. For tax calculation "Qual Div/Cap Gn" was used, however, line 18 simply takes value from line 15 form 1040.  Also, for passive income category,1116 form does not make adjustments for qualified dividends and capital gains. Can somebody tell me:

1. how I can trigger/create a worksheet for line 18 on forms 1116

2. how I can force adjustments on qualified dividends and capital gains on form 1116 (TT did ask me about amount which is qualified so I assume I can trigger it somehow)

Thanks!

[jdp852]

Hi, I am not a Turbotax expert, but I am in the same predicament as you, and have been for years.  What I do is go to the instructions for form 1116 on the IRS website.  There you will find the worksheet for line 18.  Using the instructions I calculate the correct amount for line 18.  Then I go to forms in Turbotax and override the amount on line 18.  I also override lines 19 and 21 because they don't seem to automatically change with the new amount on line 18.  All of this should not be necessary.  I don't understand why Turbotax can't calculate line 18 correctly.  I hope this helps.

[LillyChang]

Hi, thank you for your response. I figured out how to "force" line 18 calculation.

I have a desktop version, so that might be different from your version.

I switch from "Step-by-Step" view to the Forms view (You will find it in the top right corner).

Once you are in the Forms view - find 1116 Comp Wks (the list of all forms will be on the left side).

Look for the box with the title

"Form 1116, Line 18 Adjustment Exception Smart Worksheet

A.

B.

C."

You will find it behind line 16a in the 1116 Comp Wks.

By default, box A is checked (at least it was for me)

Make sure to check box B instead. That is all you need to do!

==============

Basically, by checking box B, you say you do not qualify for an exception

You qualify for the adjustment exception if you meet both of the following requirements.

1. Line 5 of the Qualified Dividends and Capital Gain Tax Worksheet doesn't exceed:

   1. $364,200 if married filing jointly or qualifying surviving spouse,

   2. $182,100 if married filing separately,

   3. $182,100 if single, or

   4. $182,100 if head of household.

2. The amount of your foreign source capital gain distributions, plus the amount of your foreign source qualified dividends, is less than $20,000.

If you are subject to the alternative minimum tax, see the special rules in Regulations section 1.904(b)-1(b)(3)."

Also (I had problems with line 1a adjustments) , in the same form "1116 Comp Wks" look for the box with the title "Foreign Qualified Dividends and/or Capital Gains Adjustment Smart Worksheet" and check that box. Below you can manually enter qualified dividends versus unqualified dividends.

I hope this helps.

[otikasi]

No it did not in the past , and your  question just confirms it has not been fixed for 2024

This problem has been reported for years. 

I have not tried the "remedies" as suggested by others, but seem like they should work ......

In my case, after over a decade, I  decided to just stop using TTAX in the future (this is my last year ... I was hoping they will fix the problem .. but obviously they did not).

[LillyChang]

Did you see my comments/instructions above? You just have to check the box to trigger line 18 calculations. It worked fine for me.

[jdp852]

Hi, thanks for taking the time to research this and coming up with a workaround.  I tried your approach and it worked.  I am subject to alternative minimum tax, and unfortunately, Turbotax did not calculate line 18 of Form 1116 AMT correctly.  There is no "Comp Wks" for Form 1116 AMT so there is no place to check a box B.  I thought the entries from the original Comp Wks might carryover, but that is not the case.  But due to your efforts, we are part way there.  Thanks again.

[LillyChang]

We are also subject to AMT and 1116 AMT was done properly for me. It is automatically picked up from "Comp Wks".

Please remember that line 18 calculations on form 1116 are DIFFERENT for "normal" 1116 and for AMT 1116. So if you see a different value in line 18 AMT 1116 form, that might be correct.

It is awful because the IRS gives instructions for calculating line 18 for the "normal" 1116 form in one document (instructions for 1116 Form), but instructions for calculating line 18 for 1116 AMT form are in another document (Instructions for AMT form). 

[jdp852]

I went back and rechecked line 18 on 1116 AMT and the automatic calculation was not correct.  So I went to the data source for line 18 and here is what it says:

Part III, line 18:

If this category of income is lump-sum distribution (box e), from smart worksheet, line C.

If tax is calculated not using the Schedule D Tax Worksheet or the Qualified Dividends and Capital Gain Tax Worksheet or Form 6251, line 17 is not more than $191,100 ($95,550 if married filing separately) and the Adjustment Exception applies, from Form 6251, line 4.

Form 6251 Line 4

If tax is computed using the Schedule D Tax Worksheet or the Qualified Dividends and Capital Gain Tax Worksheet and the Adjustment Exception does NOT apply, from Form 6251, line 4 LESS the following amounts from Form 6251:

 - line 36 multiplied by .1071
 - line 33 multiplied by .2857
 - line 30 multiplied by .4643
 - line 23

End

The amount Turbotax used was based on the second paragraph.  In my situation, the calculation should be based on the last part.  You are correct, the amount is different from normal 1116.

[LillyChang]

Hi,

For me calculation was correct.  It was based on the rule you provided:

 - line 36 multiplied by .1071
 - line 33 multiplied by .2857
 - line 30 multiplied by .4643
 - line 23

I double-checked the numbers - for me, all it  is:

1.  line 4 from 6251 form.

2. Line 30 (from form 6251) * 0.4643

line 18 form 1116 Result = 1. - 2. 

Did you have any lump sum? I did not. Also, tax was calculated based on Qualified Dividends and Capital Gain Tax Worksheet

[jdp852]

Hi, like you I did not have a lump sum and tax was calculated based on the Qualified Dividends and Capital Gain Tax Worksheet.  There must be something special about my situation.  In any case, I think everything is in good order for this year.

[Vijay]

I had the same problem. Go to 1116 Comp Wks

in the box “ Form 1116, line 18 Adjustment Exception Smart Worksheet:

check Box B

Hope this fixes and calculate correct Foreign Tax credit. 

[Vijay]

Go to forms:

1116 comp wks:

In box “ Form 1116, line 18 Adjustment Exception smart worksheet:

Check box B

It will correct the calculation.