Can I remove a value on Form 1116, Line 3b with online Turbo Tax?

[64dancer]

TT is putting in my Self-Employment deduction of $18 on this line. That money is directly related to U.S. Income and should not be on this line. I am using the online version, so can't go to Forms Mode to remove it. Where can I go in the questions to make sure this does not go on line 3b?

[JohnW152 · Accepted solution]

You can make the adjustment you’re referring to by walking back through your Foreign Tax Credit entries in TurboTax Online:

1. If you’re on the Hi TurboTax Client, let's keep working on your taxes! screen, click the Pick up where you left off button.  Otherwise, 
2. Click Federal in the left pane, if you’re not already there
3. Click Deductions & Credits in the banner
4. Scroll down and click Show more to the right of Estimates and Other Taxes Paid
5. Select Start to the right of Foreign Tax Credit
6. Enter all relevant information, and you’ll at some point see a screen called Definitely Related Expenses – [Country] and you’ll be asked to enter a Description, Amount, Country, and Deduction Type.  

[64dancer]

Great Answer. You did so well on that one, I thought I'd try one more.

Another question, I need to use Form 8960, Line 7 for a recovery of state taxes from 2020. I am just not sure if it goes on my 2021 tax return or 2022 since you add it in the year of the recovery. I received my state refund in 2021, but my federal return is coming (supposedly on the 31st) in 2022. Which recovery are they talking about?

[JohnW152]

For income taxes you paid in 2020, with at least a portion of that being refunded in 2021, the recovery would be reported in 2021.

I’m not sure I understand the relevance of your federal return in relation to state sales tax.  Please provide further details, as you deem relevant.

As an FYI, though, you might look at the second paragraph under Deduction recoveries in the 2021 Instructions for Form 8960 for more specific state income tax information.

[64dancer]

For my Federal Form 8960, I need to include a refund of a previously deducted item to increase my NIIT "in the year of the recovery".  This is what I am trying to calculate and also determine if it goes on my 2021 or 2022 taxes.

On my 2020 Form 8960, I have $3495 on 9b for state income tax (not state sales tax). It ended up reducing my NIIT in 2020 by $132. I have not recovered this $132 because I have not received my 2020 Federal Tax Refund yet. So, 2021 was NOT the year of recovery. This leads me to believe I need to include this modification on my 2022 (Form 8960, Line 7) taxes since that will be the year I receive the recovery. Am I thinking correctly? I did receive my State Refund in 2021. But I do not think that is relevant.

I now need

[64dancer]

Publication 525, page 28 under "Total recovery included in income" states, "If you recover an amount that you deducted in an earlier year when you were figuring your AGI, you must generally include the full amount of the recovery in your income in the year received.  

In further support of my belief that this goes on my 2022 taxes is the next column of Pub 525 under Capital Gains where it states, "If you determined your tax in the earlier year by using the...Qualified Dividends and Capital Gain Worksheet, and you receive a refund in 2021 of a deduction claimed in that year, you'll have to refigure your tax for the earlier year to determine if the recovery must be included in income."

Again, I have not received my Federal Refund yet, so it was not received in 2021. Doesn't this mean it will go on 2022 taxes?

And more troublesome is calculating the amount that will eventually go on line 7.  I deducted $3495, which saved me $132. To me, what I will recover in 2022 is $132. Is this what goes on Line 7? I attempted to fill out: Line 7 - Deduction Recoveries Worksheet in the instructions and came up with $316 to put on Line 7.

[64dancer]

I looked in Turbo Tax to see where to add line 7 (in case I need to for 2021) in the questions and did not find it.

I went to Other Tax Situations and then Additional Taxes and Repayments. I selected Yes when asked Any Other Taxes? In the list of options is has Modification to NIIT due to recovery from a prior year, so I assumed I was in the right place, however, in the next series of questions, I did not see this as an option for entry.

Where do I enter the deduction recovery for line 7 of 8960?

[ThomasM125]

You would have to use the desktop version of TurboTax to make an entry on line 7 of form 8960. To do so, you bring up the form 8960 worksheet on which you can enter the amount directly on line 7.

You can transfer your tax file to use on the desktop TurboTax program by using the Tax Tools icon on your left menu bar in TurboTax, then then choose Tools icon and then Save your 2021 return to your computer.

You can purchase the TurboTax download program here:

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