How does TurboTax calculate line 3e on form 1116? For multiple years it has been much greater than my gross income, about 50% larger. Is it a software error?

[Mike9241]

just the way the code specifies which is in the instructions to form 1116

For lines 3d and 3e, gross income means the total of your gross receipts (reduced by cost of goods sold - but not other expenses ) , total capital and ordinary gains (before subtracting any losses), and all other income (before subtracting any deductions).

[TaxPayerAnonymous]

What you specify is not what TurboTax is using.  It is on the order of 50% over that and does not seem to be any reasonable function of other numbers in the return, unless maybe they actually count only capital gains from 1099B and not capital losses, which would require counting each stock transaction on Schedule D that was a gain and ignoring losses, since 1099B only summarizes short and long term, not gain vs loss totals.  That seems like the wrong thing to do (so I do not want to go to the trouble of checking for that).  Your instructions are not in irs.gov for line 3e.  This seems to be a bug in TurboTax, and if it is not, Intuit should add a worksheet to explain where the number comes from.

[AmyC]

See 2023 Instructions for Form 1116 Page 17 states:

Lines 3d and 3e 

For lines 3d and 3e, gross income means the total of your gross receipts (reduced by cost of goods sold), total capital and ordinary gains (before subtracting any losses), and all other income (before subtracting any deductions).

Line 3e. Enter on line 3e in each column your gross income from all sources and all categories, both U.S. and foreign. "Gross income from all sources" is a constant amount (that is, you will enter the same amount on line 3e for each column of all Forms 1116 that you file). Include any foreign earned income you have excluded on Form 2555 but don't include any other exempt income. If you are a nonresident alien, include on both lines 3d and 3e your income that isn't effectively connected with a trade or business in the United States. If you had to adjust your foreign qualified dividends or capital gains (discussed earlier), include those amounts without regard to any adjustments

Which leads to page 9:

Qualified Dividends and Capital Gain Tax Worksheet (Individuals) 

If you completed the Qualified Dividends and Capital Gain Tax Worksheet in the Instructions for Form 1040 and you don't have to file Schedule D, you may have to adjust the amount of your foreign source qualified dividends and capital gain distributions.

You must adjust the amount of your foreign source qualified dividends and capital gain distributions if both of the following apply.

• Line 5 of the Qualified Dividends and Capital Gain Tax Worksheet is greater than zero.

• Line 23 of the Qualified Dividends and Capital Gain Tax Worksheet is less than line 24 of that worksheet.

Adjustment exception. If you qualify for the adjustment exception, you can elect not to adjust your foreign source capital gain distributions and qualified dividends. You make this election by not adjusting these items. If you make this election, you must elect not to adjust any of your foreign

source qualified dividends or capital gain distributions.

You qualify for the adjustment exception if you meet both of the following requirements. 

1. Line 5 of the Qualified Dividends and Capital Gain Tax Worksheet doesn't exceed:

a. $364,200 if married filing jointly or qualifying surviving spouse,

b. $182,100 if married filing separately,

c. $182,100 if single, or

d. $182,100 if head of household.

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

If you are subject to the alternative minimum tax, see the special rules in Regulations section 1.904(b)-1(b)(3).

How to make adjustments. To adjust your foreign source qualified dividends or capital gain distributions, multiply your foreign source qualified dividends or capital gain distributions in each separate category by 0.4054 if the foreign source qualified dividends or capital gain distributions are taxed at a rate of 15%, and by 0.5405 if they are taxed at a 20% rate. Include the results on line 1a of the applicable Form 1116.

You adjust your foreign source qualified dividends or capital gain distributions taxed at the 0% rate by not including them on line 1a.

No adjustments required. If you aren't required to adjust the amount of your foreign source qualified dividends or capital gain distributions, or you qualify for the adjustment exception and elect not to adjust these items, include the amount of your foreign source qualified dividends and capital gain distributions in each separate category (without adjustment) on line 1a of the applicable Form 1116.

@TaxPayerAnonymous