Error in Form 1116 Line 3a

[AhuraMazda]

Turbotax automatically calculates "Certain itemized deduction or standard deduction" on the Form 1116 3a

There is error in this automatic calculation. In my case the State income tax and Property Tax are capped but it shows almost half the amount on line 3a of Form 1116. 

Please help in fixing the issue

[MelindaS1]

The discrepancy might be caused by the fact that state income tax should not be figured into the total on Form 1116 Line 3a. State income tax is a tax based on U.S.-source income amount(s), and should not be figured into the total. From the IRS website Instructions for Form 1116 (2025):

Lines 3a and 3b

Some deductions don’t definitely relate to either your foreign source income or your U.S. source income. Enter on lines 3a and 3b any deductions (other than interest expense) that:

Aren’t shown on line 2, and

Aren’t definitely related to your U.S. source income.

Line 3a.

Include the following itemized deductions (from Schedule A (Form 1040)) on line 3a.

Medical expenses (line 4).

General sales taxes.

Real estate taxes for your home.

State and local personal property taxes.

If you don’t itemize deductions, enter your standard deduction on line 3a.

If you recalculate your Line 3a on your own including just the above listed itemized deductions (medical expenses, general sales tax, home real estate tax, and state and local property tax) - do you still have a discrepancy between that and what the software is showing? 

[AhuraMazda]

Melinda,

I list the itemization for Form 1116  Line 3a calculation

From Schedule A

Line 4: Medical expenses (line 4). Zero

General sales taxes. Zero

Line 5b: Real estate taxes for your home. = $24,703

Line 5a and 5c: State and local personal property taxes. = $27,072

Add Total = $51,775 (Note: Schedule A Line 6 is $40,000)

Turbotax automatically calculates Form 1116 Line 3a to $19,520, which is an error in Turbotax

Please help. Thank you

[AhuraMazda]

Will someone from Turbotax be able to answer to my question.

[MelindaS1]

I checked the current open investigations, and I did not find any related to the calculations of Form 1116.  The first step in requesting a correction is to examine a diagnostic tax file experiencing the situation.  You can provide a diagnostic copy of your tax data file so that someone here can take a closer look.  The diagnostic file will not contain personally identifiable information, only numbers related to your tax forms.  

If you would like to provide us with the diagnostic file, follow the instructions below and post the token number along with which version of TurboTax you are using and what states you are filing in a follow-up thread.  It would be helpful to have a screenshot of the token number to prevent it from being redacted.

Use these steps if you are using TurboTax Online:

• Sign in to your account and be sure you are in your tax return.
• Select Tax Tools in the menu to the left.
• Select Tools.
• Select Share my file with agent.
• A pop-up message will appear, select OK to send the sanitized diagnostic copy to us.
• Post the token number here. 
• Please tag me by typing @ my username

If you are using a CD/downloaded version of TurboTax, use these steps:

• Select Online at the top of the screen.
• Select Send Tax File to Agent.
• Click OK.
• Post the token number here.
• Tag me with @ my username, thank you!

[AhuraMazda]

MalindaS1,

I have the Token number of the requestedfile sent. Please let me know your email address to send it. Thank you

[AhuraMazda]

 @ MalindaS1, File has been sent. Please provide your email address to send the Token number

[MelindaS1]

Thanks! Can you post the token number here in the thread so I can take a look? 

[AhuraMazda]

@MelindaS1 

Token Number: 74291562-13612422

[AhuraMazda]

@MelindaS1 

Token Number: 74291562-13612422

Please do not put the above Token Number in public 

[MelindaS1]

I took a look at the numbers and everything is calculating correctly. The IRS Form 1116 instructions state:

Lines 2 Through 5—Deductions and Losses

You must reduce your foreign gross income on line 1a by entering on lines 2 through 5:

• Any of your deductions that definitely relate to that foreign income; and
• A ratable share of your other deductions that don’t definitely relate to that foreign income, any other foreign income, or U.S. source income.

Because your Schedule A Line 5d SALT deductions are limited to the $40,000 cap, when pulling out the non-income taxes (Sch A 5b + 5c) over to Form 1116 to be deducted, they must be prorated by the amount of the limitation % on Line 7 against the total.
 

If you select Forms > 1116 Comp Wks, you'll see this ratable share calculation working on both your Sch A 5b and 5c amounts:

40,000/51,775 = 0.772574

0.772574 * 24,703 = 19,085

0.772574*563 = 435

19,085 + 435 = 19,520
 

However, you seem to be missing out on a deduction that "definitely relate(s) to that foreign income," - the foreign portion of your Sch A Line 5a state tax:

Because you live in California, I highly recommend you take a look at this thread to include CA tax ...