Income re-sourced by treaty, negative value for qual. dividends + longterm capital gain

[nstuhr]

Hi,

Situation: US citizen living in Germany, trying to re-source income using form 1116.

TurboTax is asking how much of my re-sourced income consists of "foreign qualified dividends and long-term capital gains." Based on my calculations, this value is negative due to losses from the sale of stocks. However, TurboTax does not allow me to enter a negative number in this field.

While reviewing the IRS instructions for Form 1116 (specifically the Adjustment Exception section for Schedule D filers), I found the following:

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

It goes on to state:

"Your foreign source net capital gain is the excess of your net long-term capital gain from foreign sources over your net short-term capital loss from foreign sources."

This leads me to two questions:

a) The number could be negative, correct? How do I enter this in TurboTax?

b) Is there a possible typo or ambiguity in the instruction? Specifically, referring to "net capital gain" as "the excess of long-term capital gain over short-term capital loss" (rather than over long term loss), seems counterintuitive.

[JotikaT2]

It's hard to determine what is happening as it does depend upon how the income is being entered into TurboTax.  See where do I enter the foreign tax credit (Form 1116) or deduction for guidance on reaching the foreign credit section in TurboTax.

Once you go through the screens, you will reach a screen titled "foreign losses."  You will need to enter the loss as a positive number as instructed on the screen.  

In regards to your second question, the $20,000 would only apply if you meet the income limits as established as part of number 1 of the adjustment exception as listed on page 9 of the instructions as both would need to apply. 

[nstuhr]

Hi,

thanks for the input. I'm not sure, but I think this is something different. Foreign loss is what's going into line 5 of the form 1116. And this value would include losses from sale of stocks, I agree. That part is easy.

Just as an example, assume 5k of foreign qual divididends, and 20k of foreign l.t. losses. The 20k goes in l. 5. 

But TurboTax also asks for the part of the foreign income that's qualified dividends or longterm capital gain. That should be -15k in this example. I assume the purpose of that question is to determine the need of foreign income adjustment, which is something different than the value in line 5. I need to enter something there and the problem remains, that TurboTax does not allow a negative value here. I'm not sure I can just decide to not include losses in capital gains there, just because they were already entered into the field you showed in your screenshot.

The income is below the threshold, so only the second condition (qual. div + l.t. cap. gain) is relevant, but I think this is what you were saying.