How do we calculate the Adjusted basis of investment assets generating foreign income on FORM 1116 ?

[sweerkaul]

There is a dividend income and interest income on saving accounts that I have from the foreign country and because of this TT ia asking me to provide Adjusted basis of investment assets generating foreign income and Adjusted basis of total investment assets on FORM 1116 . Can someone help me how to calculate this ?

[rogge1722]

 It appears that you have investment interest expense that appears in Schedule A line 9. The screenshot shows the data for an example on p.16 , line 4b of the form 1116 instructions. The amount in 4b1a is the amount from Schedule A, line 9. The user calculates (b) and (c). TT calculates the remaining entries.

[sweerkaul]

@rogge1722 

I do not have any investment interest expense (4b1a) .

I have a 1099-DIV from a US brokerage company ( E-trade) which shows a dollar amount (e,g 500 $) as Foreign tax paid.

Apart from this 1099-DIV , I have interest income (e,g 500 $) from Saving Bank accounts in foreign country . For this the TT is asking me to calculate Adjusted basis of investment assets generating foreign income (4b1b) 

and Adjusted basis of total investment assets (4b1c) ? 

Can you help me how can I calculate that ?

[rogge1722]

I don't know why TT is asking, but since there isn't any expense, insert a zero in (a), zero in (b), and "1" in (c) and it will total a zero.

[potentilla]

this is a ridiculous thing that i deal with every year. Basically i make an educated guess. Brokerages do provide the cost  basis, but only started keeping that info for the past ten or fifteen years. One year i went through and approximated the cost basis of all my investments and all the foreign stocks as well. Then i put a round number in the space for total and foreign investments. Then, i have to look up what i did last year. I'll use the same numbers or add a little to it, and put in for this year line 4 b (1) b and c of form 116. I can't see the significance unless it is for a macro economic issue.

[SGofAZ]

If you enter a "0" for 4b-1c you will get an error when you "Run Smart Check" that states this entry "shouldn't be less than or equal to zero."  Should we just ignore this error?

[DaveF1006]

I would suggest leaving this blank to get past the error check. If necessary, enter 1 as an entry just to make it past the error if it is looking for an entry in this box. This won't negatively impact your return.

@SGofAZ 

[SGofAZ]

If I leave it blank it treats it like a 0 and continues to get the error during Smart Check.  Entering a 1.00 to 0.50 (treated as a 1.00) results in a lowered tax burden (it has an material effect).  If I entered 0.49 to 0.1 it will get treated as if I entered 0 and once again get the error during Smart Check.  

[AmyC]

Many brokerages will have a detail sheet that tells you the percentage invested in each area. You can multiply your investment times the percentage listed for the basis.

The instructions for Form 1116 state:

Line 4b Other interest expense includes investment interest, interest incurred in a trade or business, and passive activity interest. If you are a U.S. citizen, resident alien, or a domestic estate, and your gross foreign source income (including any income excluded on Form 2555) doesn't exceed $5,000, you can allocate all of your interest expense to U.S. source income. Otherwise, each type of interest expense is apportioned separately using an “asset method.” See Pub. 514 for more information. Example. You have investment interest expense of $2,000. Your assets of $100,000 consist of stock generating U.S. source income (adjusted basis, $40,000) and stock generating foreign source income (adjusted basis, $60,000). You apportion 40% ($40,000/$100,000) of $2,000, or $800, of your investment interest to U.S. source income and 60% ($60,000/$100,000) of $2,000, or $1,200, to foreign source income. In this example, you will enter the $1,200 apportioned to foreign source income on line 4b. You wouldn't enter the $800 apportioned to U.S. source income on any line of Part I of Form 1116.

[erdinch]

Hello,

I faced the same problem as "sweerkaul" while preparing my 2004 tax return with T.Tax Premier. I felt the need to write this message for clarification if, in the future, others get confused in trying to resolve this problem like I did.

As "Dave F1006" has suggested in his 1st sentence "... leaving this blank to get past the error.." works.

The simplest solution though is, when entering the original data, for Federal Taxes, into the T.Tax, if you did not have any expense, just leave that entry cell blank. Don't enter a zero there like I had done at that stage; if you do then you get those error messages. I realized this after the fact.

In case you have forgotten this, then zero will show in the Computation Worksheet and you'll get an error message. In that case, in the Computation Worksheet in Part I Taxable Income (Loss) sections 4.a.1, 4.b.1.a, 4.b.2.a,  4.b.3.a, delete the zeros; the error messages will disappear.