How does Turbotax automatically calculate Gross Income from all sources on the Form 1116 3e? There is error in automatic calculation. My Mac does not open data source.

[rogge1722 · Accepted solution]

Here is the info from the Windows version:

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 7 plus
Form 1040, line 8a plus
Form 1040, line 9a plus
Form 1040, line 10 plus
Form 1040, line 11 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 15b plus
Form 1040, line 16b 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 F, 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 E, 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
Form 1040, line 19 plus
Form 1040, line 20b plus
All positive income amounts on the Other Income Statement.

[pen-name]

We're living in Germany and because of a treaty the US Social Security wages are nontaxable.  Does this mean they should be excluded when calculating the gross income from all sources for Form 1116?

[hpadden]

Form 1116's instructions have a probable error. They cause computation of the foreign tax credit using deductions that are now limited to $10,000.00, but instead based upon the original, unlimited numbers. I do not believe this is IRS's (or the law's) intent.

In my case, this did not affect the final tax amount. However, Turbotax refused to e-file based upon an "error" during review. The program stated that the amount on Form 1116 could not be greater than my actual (limited) deduction. My work-around was to claim those lower local taxes that caused the deduction to equal $10,000.00 without an imposed limit.

[JL4]

The narative definition of Form 1116 line 3ea is provided by Turbo Tax as shown by rogge1722.  I carefully followed the definition adding each reference amount and had never been able to arrive at the same number Turbo Tax determined.  The TT number was always much higher than my calculation.

I finally realized that I was interpreting the Schedule D instruction literally.  I had a significant number of trades and the numbers appearing on Schedule D were net gain/loss figures.  To get the correct value you have to go through each trade and add only the gains ignoring the losses.  In my case that added a significant value to 3ea and I finally had a number that quite closely agreed with TT.

This drove me crazy for quite some time and I hope this explanation helps others.

[h2prome]

Thanks, saves me a lot of time.

[NHenry]

Thanks JL4  I finally understand why the Gross income is always  higher than what we calculate with the formula.

They take only the Gain and don't include the loss. Turbotax should clarify this or better we should be able to see the worksheet that develop this number.

[jmrmaco]

TurboTax has changed the Data Source info associated the Gross income all sources on form 1116.  Here is the current info

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.

Comments in the past indicated that Schedule D gains were not offset by losses.   However, looking at Schedule D it is just a total for short term and long term sales from form 8949 so within a category the number is net.

[Mike9241]

from 1116 instructions

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).

you'll have an issue if you use the summary boxes on form 1099-B for types A or D capital gains.  because they are  just a total summary of all transactions of each type (no detail of gains vs losses) TurbtaxTax will not be able to exclude losses included in these boxes.

[jmrmaco]

Thank you Mike

If that is the case then Intuit should change the Data Source for line 3a.  Changing the reference to Schedule D, and just say all gains reported on form 8949, since this is the individual sell transactions.

[Bahtigo]

Even the rental income is included without deducting the expense first. not sure whether this is the intention of  the IRS.

[MarilynG1]

Foreign Rental Income (and expenses)  will be entered on Schedule E.

Any Foreign Tax you paid on the rental income can be claimed as a Foreign Tax Credit in that section.  Don't enter the Foreign Income Tax as a 'Rental Expense' on Schedule E.

Enter the Net Rental Income in the Foreign Tax Credit section as the amount of income associated with the Foreign Income Tax you are claiming. 

Foreign taxes paid on the land or building would be entered as an expense on the Schedule E (Rental Income/Expense) section of the program.  

Click this link for more info on Tax on Foreign Rental Income.

@Bahtigo

[64dancer]

I wish I had seen this post weeks ago. Line 3e had me baffled until I saw your response. Thank You!

[Katina S]

We're glad we were able to assist you in this forum!

@64dancer

[LearningTT]

Mac does not open the data source. 

To report gross income, you have to report all capital gains (without subtracting the capital losses). Reference: https://sftaxcounsel.com/demystifying-irs-form-1116-calculating-foreign-tax-credits/.  If you had made 10 stock transactions EVEN within a single year, 8 resulted in profit and 2 resulted in a loss, we need to count only the 8 positive transactions without subtracting the 2 negative transactions. I counted this way and my gross income matched the TT calculated value.  Hope this is useful to someone.