How is the foreign dividend adjustment amount (field/line 1K in worksheet -adjustment required for QD/LTCG) calculated?

[Pacifica1X]

Hello! I have an issue with form 1116 (foreign tax credit) and in particular with its worksheet. The foreign dividend I received in 2016 is reduced significantly by an adjustment amount (field/line 1K -adjustment required for QD/LTCG) calculated) How is this value in line 1K calculated?

[rogge1722 · Accepted solution]

Foreign qualified dividends and capital gains are adjusted if the following holds:

- You have foreign qualifying dividends or long-term capital gains totaling more that $20,000, OR
- Your total income exceeds the following amount for your filing status:
  - Married Filing Joint or Qualifying Widow(er): $223,050
  - Single: $183,250
  - Head of Household: $203,150
  - Married Filing Separate: $111,525

These adjustments had to be done manually outside TT before 2016.
On the form 1116 worksheet, select any entry under the country column and right click. On the box that appears, click on “data source” and another box will appear with an explanation.

If you want to double check the accuracy, you can do the calculations manually.  For form 1116 line 1a,  the instructions start on page 6 of the form 1116 instructions. Also TT made adjustments on line 18.  You can manually check that on page 21 of the instructions.

[Pacifica1X]

Thanks, your answer is a great help!

[64dancer]

I know this post was from a year ago, but I cannot figure out the calculation for line 1k either and right clicking the worksheet does nothing. What is the formula for line 1k?

[64dancer]

Ok, think I may be onto something with TT's Foreign Tax Credit Computation Worksheet:

My qualified dividends from Foreign sources is 3,268. To determine my adjustment, I multiply this by 0.4054 for the 15% tax rate = 1,325.

TT puts this number on line 1l (Net Qual. Dividends). I believe it should be on line k (Adjustment required for QD/LTCG). Line 1l should be the 3,268 - 1,325 = 1,943. TT has this number on 1k.

TT reversed the order of the numbers.

TT also put my 1a number on line 1c. This income is Dividends from Foreign Sources, NOT from Schedule B!

[Danieleec]

How to calculate adjustment is quite straight forward in the instruction, but when this adjustment required? It troubled me couple of days to understand.

It's important to understand "Instructions for Form 1116 (2022)" Page 10 for Schedule D filters.

Everyone has different situation.

For example if someone happens to belong to category: 

1. Schedule D Filers

2. Use Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions to calculate tax.

Adjustment needed?

-->Check line 5 of QD/CG TAX worksheet (Taxable income - QD - LTCG(offset by STCG if STCG is negative)), if it is greater than zero and line23<line24, you are required for QD/LTCG adjustment. Adjustment usually required because ordinary income is bigger than deductible for most.

There are some other situations, such as Schedule D Filers with 1041, Schedule D Tax Worksheet etc. check Page 10 Schedule D Filers section carefully.

And pay attention on Adjustment exception if happen to fit.