How is "gross income from all sources" calculated on Form 1116 (line 3e)? I end up with gross foreign sources income (line 3d) being larger than line 3e. Can it be?

[SBtaxquestions]

Can gross foreign source income (line 3d on Form 1116) be larger than gross income from all sources (line 3e on Form 1116)? It sounds counterintuitive, yet that is what it comes out being. There is no detailed calculation that I can see anywhere within Turbotax worksheets that shows how gross income from all sources is calculated.
Can anyone help to demystify this?
Thank you!

[rogge1722 · Accepted solution]

From TT's guidance:

Form 1116 (COPY 1) : Line 3ea
Calculated Gross income from all sources:

This is total income before deductions and is the sum of:

Form 1040, line 1 plus
Form 1040, line 2b plus
Form 1040, line 3b plus
Schedule 1 (Form 1040), line 1 plus
Schedule 1 (Form 1040), line 2a plus
Schedule C, line 7 (all copies) plus
All gains reported on Schedule D minus Schedule D, line 11, Subtotal Line A(Form 4797, Gain from Part I) plus
All gains reported on Form 4797 plus
Form 1040, line 4b plus
Schedule E, line 3 total plus line 4 total plus
Schedule K-1 Worksheet - Partnerships Box 16, Code B (if it has a value); otherwise income reported on line 1, 2, OR 3 plus any amount on line 4 plus
Schedule K-1 - Partnership Additional Information page 1, Box 11 section,Code A, line 1 (if positive) and line 3 and line 4 and Code I, line 5
Schedule K-1 Worksheet - S Corporations Box 14, Code B (if it has a value); otherwise income reported on line 1, 2 or 3 plus
Schedule K-1 - S Corporation Additional Information page 1, Box 10 section, Code A, line 1 (if positive) and line 3 and line 4 and Code H, line 5
Schedule K-1 Worksheet - Estates and Trusts, Box 14 Code B : Foreign Tax Information section, line 7 (if it has a value); otherwise income reported in Part III lines 5, 6, 7 and 8 plus
Schedule F, line 11 (all copies) plus
Form 4835, line 7 ( all copies) plus
Schedule 1 (Form 1040), line 7 plus
Form 1040, line 5b plus
All positive income amounts on the Other Income Statement.

[SBtaxquestions]

Thanks a lot!

[jlebas]

I am having a similar problem.  I cannot see how the TT determined gross income is being determined.  I have carefully added the amounts specified in the TT help and get about $4000 less than the TT amount.  Also, the TT help has at least 2 errors.  First, taxable social security payments must be included in gross income.  Second, the 11th "plus" item in the list is, "Schedule K-1 Worksheet - Partnerships Box 16, Code B (if it has a value); otherwise income reported on line 1, 2, OR 3 plus any amount on line".  But, the worksheet does not have a Box 16.  I believe the reference should be to Schedule K-1, not the worksheet.  And, since I am not able to match the TT amount, there must be another error.

[bumper6]

I've got a similar problem but in my case it seems to be off about +$350k. Since it appears to just be used in a calculation that supports the tax credit and has no impact at all (in my case) in form 1116, I'm just going to ignore it. I've wasted enough hours tracking down software bugs and self inflicted wounds. Good luck.

[ThomasM125]

If you had foreign income that had been excluded from taxation, then line 3(e) could be more than the income reported on your tax return, since line 3(e) would include that income but it would not appear as income on your form 1040.

[jlebas]

I also have this problem.  In my case, the difference between TT's calculation and mine is about $10k.  It's not clear if that is causing an error in the foreign tax credit.  And I agree that the TT instructions for this Line 3eA are flawed.  As to social security, I believe the amount to include is the total amount (Form 1040 Line 6a) rather the taxable amount (Form 1040 Line 6b). Similarly, I suspect the intent is to use Form 1040 Line 5a rather than 5b.  Finally, for the references to Form D, it's not clear how losses are handled.  I sure wish TT was responsive to these kinds of problems.

[jlebas]

I would encourage you to carefully work through the instructions that you copied from TT and posted and then realize the instructions are, indeed, flawed.

[jlebas]

Further to my previous posts on this topic....

On the Tax & Int Wks, TT calculates the Total Available Income on Line 1a(5) for determining the General Sales Tax deduction.  I understand this calculation but note that TT has an error on Line 1a(1) where they reference Form 1040 Line 7.  The correct reference should be Line 11.  In the calculation of Total Available Income, the correct value is used, it's just the worksheet reference that is incorrect (TT, you need better proofreaders and quality control).

The Gross Income from All Sources used to calculate the foreign tax credit on Form 1116 is $11,466 higher than the Total Available Income.  It seems like they should be the same.  I am still not able to back into the TT-calculated amount.  And, of course, the higher the Total available Income, the larger the deduction, while the higher the Gross Income from All Sources, the lower the Foreign Tax Credit.  Both calculations are opposite of what you want to minimize taxes.

Too bad TT does not respond to these obvious problems in the software.

[twobbs]

For my return, the key confusion had to do with capital gains and losses.  The actual IRS instructions seem to call for gains only without subtracting losses.   (This can be read from the TT instructions, but it's obscure.)  Once I omitted capital losses from the gross income from all sources number, things added up.  So, I believe the TT computation is correct.

[pmokeefe]

I received the same error while working on my 2021 taxes.  It turned out the problem was in a Form K-1 where I had a box 14 with Foreign taxes paid.  There is a field called "Gross Income Sourced at the Beneficiary Level".  By default TT had 0 there, even though it could have easily computed it from the information supplied in the K-1.  After I put in the proper amount there was no error later in Form 1116.  Note I had did this by restarting with a copy of the Tax Return saved  before starting work on Form 1116.  So I'm not sure if it's possible to easily fix the error once it has occurred.  

[budlite01]

I meticulously checked the calculations for "gross income from all sources" using the recommendations above and also just simply adding together gross income from all sources. I do not have a K-1 entry. Unfortunately, there does not appear to be a way to verify the figures used to do the calculation in TT. After spending over an hour checking every entry for every source of income, I am now convinced that there is an error in the application that overestimates this figure. Further, there is no way to overwrite the correct figure. TT you need to fix this!

[pmokeefe]

Sorry to hear that.  Then only thing I can suggest is perhaps your case is analogous but not identical to mine: that the problem shows up in Form 1116, but the actual source of the problem is in some other form.  I changed nothing in the input to Form 1116, only in K-1 (obviously somewhere else in your case)  One possibility would be to look at the forms where - in your case -  the foreign income/taxes were originally declared.   But it sounds like you have already done extensive checking, so maybe the problem is different in your case, unfortunately.  

Good luck!