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K9baddog
Level 2

Foreign Tax Credit - Adjustment Exceptions for Qulaified Dividends

I am electing Foreign Tax Credit for foreign taxes paid. Single foreign income source is international mutual fund dividend distribution.  Foreign Income - $29,246.  QDI Eligible Foreign Income - $21,082.  Foreign Tax Paid - $2,500.

TT Premiere interview and my inputs follow:

Country - RIC

Foreign Source Income - $29,246

Simplified Method - Yes

No Other Income or Expenses - Yes

Foreign Tax Paid - 13/31/2020

Carryover - No

 

After reading IRS Instructions for Form 1116, I conclude I am required to adjust my foreign income for Qualified Dividends because my foreign income exceeds $20,000 which means I don't meet one of the two Adjustment Exception requirements.  This also seems to be supported by the TT HELP information provided for TT "Foreign Tax Computation Worksheet" when viewed in the FORMS display. 

 

TT never asks for Qualified Dividend amount. 

Does my Foreign Income amount need to be adjusted?

 

Note TT Help for the Comp Worksheet says:

"Foreign Qualified Dividends and/or Capital Gains Adjustment Smart Worksheet:

This box will automatically be checked if you are required to make adjustments for foreign qualified dividends or capital gains, and you do not meet the Adjustment Exceptions. Even if you meet the Adjustment Exceptions, you may elect to make the adjustments by checking this box. (This is not recommended.) This check box will disable the adjustment exception calculation in the Line 18 Smart Worksheet at the bottom of page 3 of this worksheet."

 

The "Make Adjustments" box is not checked.  Should I switch to Forms View and check this box manually and then input my Qualified Dividend Amount or should I accept the Foreign Tax Credit is being computed correctly when simply answering the interview questions?

 

 

 

 

 

 

2 Best answer

Accepted Solutions
rogge1722
Level 8

Foreign Tax Credit - Adjustment Exceptions for Qulaified Dividends

Since the foreign qualified dividends are greater than $19,999, the adjustment must be made. Because you have Forms Mode, you can avoid going thru the interview.

 

Bring up the f1116 worksheet.  Under Part 1, go to line 1h the “qualified div. and LT cap. gains.”  Insert the 21k into the box.  Notice that 1g now displays only the unqualified dividends and just stores this for later.  The 21k goes into the algorithm and the amount subtracted from the 21k is displayed in line 1k and the remaining qualified dividends are displayed in line  1l.  Then TT combines the unqualified amount from line 1g to the qualified amount in 1l and displays the total in line 1m.  TT will also checkmark the smart worksheet indicating that the adjustment is required. Also TT will checkmark “B” in the line 18 adjustment worksheet near the bottom.

View solution in original post

rogge1722
Level 8

Foreign Tax Credit - Adjustment Exceptions for Qulaified Dividends

Here is what appears is causing many users to miss the screen for entering  LT qualified dividends.

When entering the foreign tax credit for the first time, when you arrive at the screen with the following header:

“No Other Income or Expenses”

                If YES is selected, then the following screens headers appear before exiting.

“Foreign Taxes Paid”, “Carryovers”, “Foreign Taxes”.

                If NO  is selected, then the following screen headers appear:

“Completing Form 1116”, “Foreign Tax Credit Worksheet”, ”Choose Income Type”, “Country Summary”, then “Any Foreign Source Qualified Dividends or LT Cap. Gains.”

View solution in original post

6 Replies
rogge1722
Level 8

Foreign Tax Credit - Adjustment Exceptions for Qulaified Dividends

Since the foreign qualified dividends are greater than $19,999, the adjustment must be made. Because you have Forms Mode, you can avoid going thru the interview.

 

Bring up the f1116 worksheet.  Under Part 1, go to line 1h the “qualified div. and LT cap. gains.”  Insert the 21k into the box.  Notice that 1g now displays only the unqualified dividends and just stores this for later.  The 21k goes into the algorithm and the amount subtracted from the 21k is displayed in line 1k and the remaining qualified dividends are displayed in line  1l.  Then TT combines the unqualified amount from line 1g to the qualified amount in 1l and displays the total in line 1m.  TT will also checkmark the smart worksheet indicating that the adjustment is required. Also TT will checkmark “B” in the line 18 adjustment worksheet near the bottom.

View solution in original post

K9baddog
Level 2

Foreign Tax Credit - Adjustment Exceptions for Qulaified Dividends

Thanks for assistance. TT did exactly what you described. I will submit return with adjustment.

 

Of course this make me want to know why the standard interview method did not yield this result. I have double checked my inputs and actually completed my return twice with the same result.

I am going to try to figure out if interview problem is:

  1. Data entry error
  2. TT application error

I plan to try manually entering 1099 rather than downloading it and i will also uninstall TT for Windows and install a fresh copy and do return again to see if same result. If anyone has experienced same issue or knows if this is a TT aplication issue, I would appreciate you informing me.

rogge1722
Level 8

Foreign Tax Credit - Adjustment Exceptions for Qulaified Dividends

Here is what appears is causing many users to miss the screen for entering  LT qualified dividends.

When entering the foreign tax credit for the first time, when you arrive at the screen with the following header:

“No Other Income or Expenses”

                If YES is selected, then the following screens headers appear before exiting.

“Foreign Taxes Paid”, “Carryovers”, “Foreign Taxes”.

                If NO  is selected, then the following screen headers appear:

“Completing Form 1116”, “Foreign Tax Credit Worksheet”, ”Choose Income Type”, “Country Summary”, then “Any Foreign Source Qualified Dividends or LT Cap. Gains.”

View solution in original post

64dancer
Level 2

Foreign Tax Credit - Adjustment Exceptions for Qulaified Dividends

Looking at the Foreign Tax Credit Computation Worksheet prepared by Turbo Tax, I have two questions:

 

1. My Total Foreign Income appears on box 1c (which is for Interest and Dividends from Schedule B). Why is it here????  It also appears in Box 1f, where I believe it should be.

 

2. I can see where TT got every number except the number on Line 1k. What is the manual calculation for this number?

rogge1722
Level 8

Foreign Tax Credit - Adjustment Exceptions for Qulaified Dividends

Line 1c as indicated is where dividends from Sch. B (form 1099-DIV) are inserted.  Line 1f is the sum of 1a thru 1e.  So line 1f will equal 1c if there is no other source of income. 

 

Line 1k is the amount of qualified dividends reduced by the algorithm if required.  It will be zero if  no adjustment is required.   The algorithm is described in the f1116 instructions on p. 8 under the heading "How to make adjustments."

 

 

64dancer
Level 2

Foreign Tax Credit - Adjustment Exceptions for Qulaified Dividends

My dividends from Schedule B are 16,822. The dollar amount TT put on line 1c of the Foreign Tax Credit Worksheet is 4,070. This is the amount of my Total Foreign Income. This should be on Line 1a (with the required adjustment) and on Line 1f (which is actually correct).

 

For a separate issue with TT filling out the forms incorrectly, Schedule A of Form 8995-A has the decimal point in the wrong spot for Lines 9 & 10. Line 9 s/b 0.1988 (TT has .001988) and Line 10 s/b 80.12% (TT has 0.8012%).

If you use their Line 10 to calculate Line 11, you would get 616 x 0.8012% = $4.94. If you use the correct numbers, you get 616 x 80.12% = $494. Miraculously, they put the correct number of $494 on line 11 because they brought it over from their Qualified Business Income Component Worksheet where they had the correct reduction ratio of 0.1988 and applicable percentage of 0.8012.

But that doesn't fix the problem that the numbers they have on my SCH A of Form 8995-A are incorrect. 

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