Form 1116 - Foreign Tax Credit - "Income From all Sources"

[jon110]

Hello, fellow tax nerds! I would appreciate your help regarding Form 1116 - Foreign Tax Credit.

TurboTax shows this warning: "Gross income from all sources should be greater than your foreign income on line 1. Review entries made for foreign income or enter adjustment as necessary."

My foreign income (3d) is currently higher than my AGI, which automatically populates "Calculated gross income from all sources" and seems to be causing the issue. Has anyone encountered this error? My foreign income is higher than my AGI because my AGI is based only on US income...is this okay?

[SusanY1]

It's okay for your AGI to be lower, but for the tax credit question, income from all sources, you should include the income that is later excluded on your tax return. 

Enter an adjustment to the auto-populated number to include any income that is excluded from AGI due to the Foreign Earned Income Exclusion so that the tax credit can properly calculate for you.  

[jon110]

Hi Susan, 

Thank you for the quick reply. I am not using the Foreign Earned Income Exclusion...just the Foreign Tax Credit. Does that affect things?

Jon

[SusanY1]

Hi Jon!   In that case it's not clear to me why your foreign income is higher than your AGI. There are a number of reasons that this can be the case, but of course, there is data that I don't know since I can't see your return. 

You will still make that adjustment to show income from "all sources" so that you won't have that mismatch of a higher foreign income than AGI.