Table of Contents
Part I must be completed by all filers unless specifically indicated otherwise in these instructions.
Generally, if you received income from, or paid taxes to, more than one foreign country or U.S. possession, report information on a country-by-country basis on Form 1116, Parts I and II. Use a separate column in Part I and a separate line in Part II for each country or possession. If you paid taxes to more than three countries or possessions, attach additional sheets following the format of Parts I and II.
If you have passive income that is treated as general category income because it is high taxed, use a separate column in Part I. Enter “HTKO” on line g of Forms 1116 for passive category income and general category income.
You do not need to report income passed through from a mutual fund or other regulated investment company (RIC) on a country-by-country basis. Total all income, in the applicable category, passed through from the mutual fund or other RIC and enter the total in a single column in Part I. Enter “RIC” on line g. Total all foreign taxes passed through and enter the total on a single line in Part II for the applicable category.
Include income in the category checked above Part I that is taxable by the United States and is from sources within the country entered on line g. You must include income even if it is not taxable by that foreign country. Identify the type of income on the dotted line next to line 1a. Do not include any earned income excluded on Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion.
Example.
If you received dividends (passive category income) and wages (general category income) from foreign sources, you must complete two Forms 1116. On one Form 1116, check box a (passive category income), enter the dividends on line 1a, and write “Dividends” on the dotted line. On the other Form 1116, check box b (general category income), enter on line 1a wages not excluded on Form 2555 or Form 2555-EZ, and write “Wages” on the dotted line. Complete Parts I, II, and III of each Form 1116. Then, complete Part IV on the Form 1116 with the largest amount entered on line 21.
If you are filing a Form 1116 that includes foreign source qualified dividends or foreign source capital gains or losses, see starting on page 6.
You must check the box on line 1b if all of the following apply.
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The income on line 1a is compensation for services you performed as an employee.
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Your total employee compensation from both U.S. and foreign sources was $250,000 or more.
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You used an alternative basis (discussed in Pub. 514) to determine the source of the compensation entered on line 1a.
In addition, attach to Form 1116 a statement that contains the following information.
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The specific compensation income or the specific fringe benefit for which the alternative basis is used.
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For each such item, the alternative basis of allocation of source used.
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For each such item, a computation showing how the alternative allocation was computed.
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A comparison of the dollar amount of the compensation sourced within and without the United States under both the alternative basis and the time or geographical basis for determining the source.
You must keep documentation showing why the alternative basis more properly determines the source of the compensation.
You must reduce your foreign gross income on line 1a by entering on lines 2 through 5:
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Any of your deductions that definitely relate to that foreign income, and
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A ratable share of your other deductions that do not definitely relate to that foreign income, any other foreign income, or U.S. source income.
Do not enter any amounts on lines 2 through 5 for your HTKO column. Add all deductions that are definitely related or apportioned to passive income that is treated as general category income because it is high-taxed and enter the total amount of those deductions on line 6 in the HTKO column. Enter the amount as a negative number on your Form 1116 for passive category income. Enter the amount as a positive number on your Form 1116 for general category income.
Do not include:
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Deductions and losses related to exempt or excluded income, such as foreign earned income you have excluded on Form 2555 or
Form 2555-EZ. -
The deduction for personal exemptions. (However, you can include the additional exemptions for housing Midwestern displaced individuals from Form 8914, line 2.)
Special rules apply to the allocation of research and experimental expenditures. See Regulations section 1.861-17.
If the law of a U.S. state to which you pay income taxes does not specifically exempt foreign source income from tax, you may be required to make a special allocation of state taxes you paid. See Pub. 514 for more information.
Form 1116.
Note.
You do not need to make this computation if the entire amount of your itemized deductions is entered on any one of the following lines: line 2, line 3a, or line 4a. Just enter your reduced itemized deductions on that line.
Example.
You are single and have an adjusted gross income of $219,950. Your itemized deductions subject to the overall reduction (line 3 of the worksheet) total $20,000. $8,000 of these deductions are definitely related to the income on Form 1116, line 1a. The other $12,000 ($20,000 – $8,000) are real estate taxes, which are not definitely related.
The amount of the overall reduction on line 11 of the worksheet is $1,200. To figure the amount of the real estate taxes to include in the total for line 3a of Form 1116, divide the amount on line 11 ($1,200) by the amount on line 3 ($20,000). This is your reduction percentage (6%). You must reduce your $12,000 deduction by $720 (6% x $12,000). The reduced deduction of $11,280 ($12,000 – $720) is the amount to enter on line 3a of Form 1116. Make a similar computation to figure the amount of definitely related itemized deductions ($7,520) to enter on line 2.
Before you complete line 2, read on page 13.
Enter your deductions that definitely relate to the gross income from foreign sources shown on line 1a. For example, if you are an employee reporting foreign earned income on line 1a, include on line 2 expenses such as those incurred to move to a new principal place of work outside the United States or supplies you bought for your job outside the United States.
Do not include any interest expense on line 2. See lines 4a and 4b for special rules for interest expense.
| Note: Before you complete this worksheet, read the instructions for line 4a on this page. | |||
| 1. | Enter gross foreign source income* of the type shown on Form 1116. Do not enter income excluded on Form 2555 or Form 2555-EZ | 1. | |
| 2. | Enter gross income from all sources. Do not enter income excluded on Form 2555 or Form 2555-EZ | 2. | |
| 3. | Divide line 1 by line 2 and enter the result as a decimal (rounded to at least four places) | 3. | |
| 4. | Enter deductible home mortgage interest (from lines 10 through 13 of Schedule A (Form 1040))** | 4. | |
| 5. | Multiply line 4 by line 3. Enter the result here and on the appropriate Form 1116, line 4a | 5. | |
| *If you have to report income from more than one country on Form 1116, complete a separate worksheet for each country. Use only the income from that country on line 1 of the worksheet. | |||
| **If you were required to reduce the amount of your itemized deductions on Schedule A, enter the reduced amount of home mortgage interest on line 4 of the worksheet. | |||
Some deductions do not definitely relate to either your foreign source income or your U.S. source income. Enter on lines 3a and 3b any deductions (other than interest expense) that:
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Are not shown on line 2, and
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Are not definitely related to your U.S. source income.
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Medical expenses (line 4)
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General sales tax (line 5)
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Real estate taxes (line 6)
line 3a.
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).
Form 1116. Include any foreign earned income you have excluded on Form 2555 or Form 2555-EZ but do not include any other exempt income. If you had income from more than one country, you must enter income from only one country in each column. If you had to adjust your foreign qualified dividends or capital gains (see page 5), include those amounts without regard to any adjustments.
Divide line 3d by line 3e and round off the result to at least four decimal places (for example, if your result is 0.8756782, round off to 0.8757, not to 0.876 or 0.88). Enter the result, but do not enter more than “1.”
If your gross foreign source income (including income excluded on Form 2555 or Form 2555-EZ) does not exceed $5,000, you can allocate all of your interest expense to U.S. source income. Otherwise, deductible home mortgage interest (including points and qualified mortgage insurance premiums) is apportioned using a gross income method. Use the worksheet on this page to figure the amount to enter on line 4a. Before you complete the worksheet, read Itemized deduction limit on page 13.
Other interest expense includes investment interest, interest incurred in a trade or business, and passive activity interest. If you are a U.S. citizen, resident alien, or a domestic estate, and your gross foreign source income (including any income excluded on Form 2555 or Form 2555-EZ) does not exceed $5,000, you can allocate all of your interest expense to U.S. source income. Otherwise, each type of interest expense is apportioned separately using an “asset method.” See Pub. 514 for more information.
Example.
You have investment interest expense of $2,000. Your assets of $100,000 consist of stock generating U.S. source income (adjusted basis, $40,000) and stock generating foreign source income (adjusted basis, $60,000). You apportion 40% ($40,000/$100,000) of $2,000, or $800 of your investment interest, to U.S. source income and 60% ($60,000/$100,000) of $2,000, or $1,200, to foreign source income. In this example, you will enter the $1,200 apportioned to foreign source income on line 4b. You would not enter the $800 apportioned to U.S. source income on any line of Part I of Form 1116.
See page 2 for descriptions of foreign taxes that are eligible for the foreign tax credit and foreign taxes that are not eligible for the foreign tax credit.
You can take a foreign tax credit in the tax year you paid or accrued the foreign taxes, depending on your method of accounting. If you report on the cash basis, you can choose to take the credit for accrued taxes by checking the “accrued” box in Part II. But once you choose to do this, you must credit foreign taxes in the year they accrue on all future returns.
Generally, you must enter in Part II the amount of foreign taxes, in both the foreign currency denomination(s) and as converted into U.S. dollars, that relate to the category of income checked above Part I. Taxes are related to the income if the income is included in the foreign tax base on which the tax is imposed. If the foreign tax you paid or accrued relates to more than one category of income, apportion the tax among the categories. The apportionment is based on the ratio of net foreign taxable income in each category to the total net income subject to the foreign tax. See Pub. 514 for an example.
However, if foreign tax paid on passive income is reported to you in U.S. dollars on a Form 1099-DIV, 1099-INT, or similar statement, you do not have to convert the amount shown into foreign currency. This rule applies whether or not you can make the election to claim the foreign tax credit without filing Form 1116 (as explained on page 1). Enter “1099 taxes” in Part II, column (j), and complete columns (o) through (s) for each foreign country indicated in Part I.
Note.
You can carry back 1 year and then forward 10 years any foreign tax you paid or accrued to any foreign country or U.S. possession (reduced as described under Line 12, starting on this page) on income in a separate category that is more than the limitation. First, apply the excess to the earliest year to which it may be carried. Then, apply it to the next earliest year, and so on. The carryback-carryforward period cannot be extended even if you are unable to take a credit in one of the intervening years.
Special rules apply to the carryback and carryforward of foreign taxes paid or accrued on foreign oil and gas extraction income. See section 907(f).
File Form 1040X or other amended return and a revised Form 1116 for the earlier tax year to which you are carrying back excess foreign taxes.
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You cannot carry over unused foreign taxes paid or accrued in a year to which the election does not apply to any year for which you made the election.
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The carryback-carryforward period is not extended if you are unable to use a carryback or carryforward because you made the election.
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Do not reduce the carryback or carryforward by the amount you would have used in the election year if you had not made the election.
You may have to reduce the foreign taxes you paid or accrued by the following items.
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Taxes on income excluded on Form 2555 or Form 2555-EZ. Reduce taxes paid or accrued by the taxes allocable to any foreign earned income excluded on Form 2555 or Form 2555-EZ. If only part of your foreign earned income is excluded, you must determine the amount of tax allocable to excluded income. To do so, multiply the foreign taxes paid or accrued on foreign earned income received or accrued during the tax year by the following fraction.
Numerator: Foreign earned income and housing amounts you excluded for the tax year minus otherwise deductible expenses (not including the foreign housing deduction) allocable to that income.
Denominator: Your total foreign earned income received or accrued during the tax year minus deductible expenses (including the foreign housing deduction) allocable to that income. However, if the foreign jurisdiction charges tax on foreign earned income and some other income (for example, earned income from U.S. sources or a type of income not subject to U.S. tax) and the taxes on the other income cannot be segregated, the denominator is the total amount of income subject to foreign tax minus deductible expenses allocable to that income.
See Pub. 514 for a comprehensive example.
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Taxes on income from Puerto Rico exempt from U.S. tax. The reduction applies if you have income from Puerto Rican sources that is not taxable on your U.S. tax return. To figure the credit, reduce your foreign taxes paid or accrued by the taxes allocable to the exempt income. See Pub. 570 for more information.
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Taxes on income from American Samoa excluded from U.S. tax. If you are a bona fide resident of American Samoa, reduce taxes paid or accrued by any taxes attributable to excluded income from sources in American Samoa. For more information, see Pub. 570.
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Taxes on foreign-oil-related income. Reduce taxes paid or accrued by foreign taxes paid or accrued on foreign-oil-related income, but only to the extent the tax imposed by the foreign country on the oil-related income is considered to be materially greater than the tax generally imposed by that country on other kinds of income. See Regulations section 1.907(b)-1. The amount of tax not allowed as a credit under this rule is allowed as a business expense deduction.
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Taxes on foreign oil and gas extraction income. Reduce taxes paid or accrued by taxes imposed on foreign oil and gas extraction income. The amount of the reduction is the amount by which your foreign oil and gas extraction taxes exceed the amount of your foreign oil and gas extraction income for the year multiplied by a fraction equal to your pre-credit U.S. tax liability (for example, Form 1040, line 44) divided by your worldwide income. You may be entitled to carry over to other years taxes reduced under this rule. See section 907(f).
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Taxes on foreign mineral income. Reduce taxes paid or accrued on mineral income from a foreign country or U.S. possession if you took a deduction for percentage depletion under section 613 for any part of the mineral income.
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Reduction for failure to file Form 5471. U.S. shareholders who control a foreign corporation must file Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations. If you do not file Form 5471 and furnish all of the information required by the due date of your tax return, reduce by 10% all foreign taxes that you otherwise may take into account for the foreign tax credit. You may have to make additional reductions if the failure continues. See section 6038(c) for details and exceptions.
Note.
The reduction in foreign taxes is reduced by any dollar penalty imposed under section 6038(b).
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Reduction for failure to file Form 8865. U.S. partners who control a foreign partnership must file Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships. If you do not file Form 8865 and furnish all of the information required by the due date of your tax return, reduce by 10% all foreign taxes that you otherwise may take into account for the foreign tax credit. You may have to make additional reductions if the failure continues. See section 6038(c) for details and exceptions.
Note.
The reduction in foreign taxes is reduced by any dollar penalty imposed under section 6038(b).
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Reduction of taxes or credit due to international boycott operations. In general, if you agree to participate in, or cooperate with, an international boycott, you must file Form 5713, International Boycott Report, and attach all supporting schedules. In addition, you must reduce either the total taxes available for credit or the credit otherwise allowable by your foreign taxes resulting from boycott activities. If you can figure the taxes specifically attributable to boycott operations, enter the amount on line 12. If you cannot figure the amount of taxes specifically attributable to boycott operations, multiply the credit otherwise allowable by the international boycott factor (figured on Schedule A (Form 5713), International Boycott Factor) and enter the result on Form 1116, line 28. Attach a statement to Form 1116 showing in detail how you figured the reduction.
For more information, see Form 5713 and its instructions.
You must adjust the amount you enter on line 13 if you have foreign taxes that relate to passive income that is treated as general category income because it is high-taxed. On your Form 1116 for passive category income, reduce the amount you enter on line 13 by the amount of your foreign taxes that relate to that income. In the space above line 13, enter “HTKO” and the amount of the reduction as a negative number (in parentheses). On your Form 1116 for general category income, increase the amount you enter on line 13 by the amount of your foreign taxes that relate to that income. In the space above line 13, enter “HTKO” and the amount of the increase.
The amount on line 14 is your taxable income (or loss), before adjustments, from sources outside the United States. If the amount on line 14 is zero or a loss, you generally have no foreign tax credit for the category of income checked above Part I of this Form 1116. However, you must complete line 15 and continue with the form even if line 14 is zero or a loss.
You are required to increase or decrease the amount on line 14 by the following adjustments. The adjustments must be made in the order listed. If you have more than one adjustment, enter the net adjustment on line 15 and attach a detailed statement showing your computation. See Pub. 514 for more details on each of these adjustments.
The adjustments are:
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Allocation of foreign losses. If you have a loss on line 14 of one Form 1116 and you have income on line 14 of one or more other Forms 1116, you must reduce the foreign income by a pro rata share of the loss before you use any remaining loss to reduce U.S. source income.
If the loss reduces foreign source income, you create, or increase the balance of, a separate limitation loss account and you must recharacterize the income you receive in the loss category in later years. See Recapture of separate limitation loss accounts on page 17. In situations where the loss to be allocated exceeds foreign income in other categories, the excess reduces U.S. source income (as modified below under Capital losses), you create, or increase the balance in, an overall foreign loss account and for later years, you must follow the rules described under Recapture of prior year overall foreign loss accounts beginning on this page. If the loss in one category reduces foreign source income in another category and that second category has a separate limitation loss account with respect to the first category, then the two offsetting separate limitation loss account balances are netted for purposes of determining the amount of income in either category that is subject to recharacterization under Recapture of separate limitation loss accounts on page 17.
Capital losses.
In determining your U.S. source income, reduce the amount of any capital losses from U.S. sources by the amount you entered on line 4 of Worksheet A or line 5 of the Line 2 Worksheet for Worksheet B. If you have capital losses from U.S. sources and you did not use either Worksheet A or Worksheet B, see Pub. 514 to determine your U.S. source income.
Example.
For 2008, you completed three Forms 1116. The first had a loss from general category income of $2,000 on line 14, the second had passive category income of $4,000 on line 14, and the third had income of $1,000 from the certain income re-sourced by treaty category on line 14. You must allocate the $2,000 loss between the passive category income and the certain income re-sourced by treaty category in the same proportion as each category's income bears to the total foreign income.
The amount of the loss that would reduce passive category income would be 80% ($4,000/$5,000) of the $2,000 loss or $1,600. Include the $1,600 (in parentheses) on line 15 of the passive category income Form 1116. Assuming you have no other line 15 adjustments, enter $2,400 ($4,000 − $1,600) on line 16 of that form.
The amount of the loss that would reduce the certain income re-sourced by treaty would be 20% ($1,000/$5,000) of the $2,000 loss or $400. Include the $400 in parentheses on line 15 of the certain income re-sourced by treaty Form 1116. Assuming you have no other line 15 adjustments, enter $600 ($1,000 − $400) on line 16 of that form.
In this case, all of the $2,000 loss was allocated between the foreign source passive category income and the certain income re-sourced by treaty category, and no reduction was made to U.S. source income.
If you receive general category income in a later year, you must recharacterize all or part of that income as passive category income and certain income re-sourced by treaty in that later year. See the example under Recapture of separate limitation loss accounts on page 17.
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Allocation of U.S. losses. If you have a net loss from U.S. sources, proportionately allocate that loss among the separate categories of your foreign income. Reduce the income on line 14 (adjusted by any allocation of losses, as described under Allocation of foreign losses in these line 15 instructions) by including (in parentheses) on line 15 the allocable portion of any U.S. loss. In later years, you will be allowed to treat part of your U.S. source income as foreign source income.
A U.S. loss includes a rental loss on property located in the United States. If you have any qualified dividends or capital gains (including capital gain distributions) or losses for the taxable year and you are required to make any adjustments to those amounts, as explained earlier under Foreign Qualified Dividends and Capital Gains (Losses) starting on page 5 or the instructions for line 17, the amount of your U.S. loss is the excess of:
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The total of the amounts entered on line 14 for each Form 1116 you are filing, over
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The amount entered on line 17 of the Form 1116.
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Recapture of prior year overall foreign loss accounts. If you had an overall foreign loss in a prior year that offset U.S. source income, a part of your foreign income (in the same category as the loss) is recharacterized as U.S. source income in each following tax year.
The part of your total foreign income subject to recharacterization is the lesser of the following:
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The total amount of maximum potential recapture in all overall foreign loss accounts. The maximum potential recapture in any account for a category is the lesser of:
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The current year taxable income from foreign sources in that category (the amount from line 14, less any adjustment for allocation of losses, as described earlier under Allocation of foreign losses and Allocation of U.S. losses for that category), or
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The balance in the overall foreign loss account for that category.
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50% (or more, if you choose) of your total taxable income from foreign sources.
If the total foreign income subject to recharacterization is the amount described in a above, then for each separate category the recapture amount is the maximum potential recapture amount for that category. If the total foreign income subject to recharacterization is the amount described in b above, then for each separate category the recapture amount is computed by multiplying the total recapture amount by the following fraction:
Maximum potential recapture amount for the overall foreign loss account in the separate category Total amount of maximum potential recapture in all overall foreign loss accounts Reduce the amount on line 14 by including (in parentheses) on line 15 the amount of the recapture for the category checked above Part I as determined above. Be sure to attach your computation. If you elect to recapture more of an overall foreign loss than is required (b above), show in your computation the percentage of taxable income recharacterized and the dollar amount recharacterized.
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If you generated foreign source gain in the same category as the overall foreign loss on a disposition of property that was used predominantly in a foreign trade or business and that generated foreign source income in the same category as the overall foreign loss, then the gain on the disposition may be subject to recharacterization as U.S. source income to the extent of 100% of your foreign source taxable income. This is true whether or not you would otherwise recognize gain on the disposition. See section 904(f)(3).
The above rule also generally applies to a gain on the disposition of stock in a controlled foreign corporation (CFC), if you owned more than 50 percent (by vote or value) of the stock right before you disposed of it. See section 904(f)(3)(D) for more information and exceptions.
Reduce line 14 by including (in parentheses) on line 15 the smallest of (a) the amount of the gain not recaptured above, (b) the remaining amount of the overall foreign loss not recaptured in earlier years or in the current year, or (c) the amount from line 14 (less any adjustment for allocation of losses, as described under Allocation of foreign losses and under Allocation of U.S. losses in these line 15 instructions, and any adjustment for any recapture above). See Pub. 514 if you disposed of property described above and you recognized foreign source gain in a different category than the overall foreign loss, you recognized U.S. source gain, or you did not recognize gain.
Attach a statement to Form 1116 showing the balance in each separate category overall foreign loss account. See Regulations section 1.904(f)-1(b) for more information.
4. Recapture of separate limitation loss accounts. If, in a prior tax year, you reduced your foreign taxable income in the category checked above Part I by a pro rata share of a loss from another category, you must recharacterize in 2008 all or part of any income you receive in 2008 in that loss category. If you have separate limitation loss accounts in the loss category relating to more than one other category and the total balances in those loss accounts exceed the income you receive in 2008 in the loss category, then income in the loss category is recharacterized as income in those other categories in proportion to the balances of the separate limitation loss accounts for those other categories. You recharacterize the income by:
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Increasing the amount on line 14 (adjusted by any of the other adjustments previously mentioned in these line 15 instructions) of the Form 1116 for each of the separate categories, other than the loss category, previously reduced by including on line 15 any recharacterized income and
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Decreasing the amount on line 14 (adjusted by any of the other adjustments previously mentioned in these line 15 instructions) of the Form 1116 for the loss category by including on line 15 the amount of recharacterized income as a negative number (in parentheses).
Example.
Using the facts in the example under Allocation of foreign losses on page 16, in the next year (2009), you have $5,000 of general category income, $3,000 of passive category income, and $500 of certain income re-sourced by treaty. Because $1,600 of the general category income loss was used to reduce your passive category income in 2008, $1,600 of your 2009 general category income must be recharacterized as passive category income. Similarly, $400 of the general category income must be recharacterized as certain income re-sourced by treaty. On your 2009 Form 1116 for passive category income, you would include $1,600 on line 15. On your 2009 Form 1116 for certain income re-sourced by treaty, you would include $400 on line 15. On your 2009 Form 1116 for general category income, you would include ($2,000) on line 15.
Recharacterizing income from a separate category does not result in recharacterizing any tax.
5. Recapture of overall domestic loss accounts. If you have an overall domestic loss for any tax year beginning after 2006, you create, or increase the balance in, an overall domestic loss account and you must recharacterize a portion of your U.S. source taxable income as foreign source taxable income in succeeding years for purposes of the foreign tax credit.
The part that is treated as foreign source taxable income for the tax year is the smaller of:
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The total balance in your overall domestic loss account in each separate category (less amounts recaptured in earlier years), or
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50% of your U.S. source taxable income for the tax year.
You must establish and maintain separate overall domestic loss accounts for each separate category in which foreign source income is offset by the domestic loss. The balance in each overall domestic loss account is the amount of the overall domestic loss subject to recapture. The recharacterized income is allocated among and increases foreign source income in separate categories in proportion to the balances of the overall domestic loss accounts for those separate categories. You increase the amount on line 14 (as adjusted by any of the other adjustments previously mentioned in these line 15 instructions) of the Form 1116 for each of the separate categories to which the recharacterized income is allocated.
In a tax year you choose to claim the foreign tax credit, the overall domestic loss is the domestic loss for that tax year to the extent it offsets foreign source taxable income for that tax year or for any preceding tax year (in which you choose to claim the foreign tax credit) because of a carryback. If you do not choose to claim the foreign tax credit for a tax year, the overall domestic loss is the domestic loss for that tax year to the extent it offsets foreign source taxable income for any preceding tax year (in which you chose to claim the foreign tax credit) because of a carryback.
A domestic loss is the amount by which the U.S. source gross income for the tax year is exceeded by the sum of the expenses, losses, and other deductions properly allocated or apportioned to that income. Determine this amount by taking into account any net operating loss carried forward from a prior tax year (but not any loss carried back). If you have any capital gains or losses, take them into account after any adjustments required earlier under Foreign Qualified Dividends and Capital Gains (Losses).
If you have qualified dividends or capital gains, you may be required to make adjustments to those qualified dividends and gains before you take those amounts into account on line 17. Also, individuals have to adjust their taxable income before exemptions if they file Form 8914, Exemption Amount for Taxpayers Housing Midwestern Displaced Individuals.
If you completed the Qualified Dividends and Capital Gain Tax Worksheet in the instructions for your tax return, you must use the Worksheet for Line 17 on page 18 to figure the amount to enter on line 17 if:
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You file Form 1040 and
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Line 7 of your Qualified Dividends and Capital Gain Tax Worksheet is greater than zero, and
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Line 16 of your Qualified Dividends and Capital Gain Tax Worksheet is less than line 17 of that worksheet, OR
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You file Form 1040NR and
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Line 5 of your Qualified Dividends and Capital Gain Tax Worksheet is greater than zero, and
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Line 14 of your Qualified Dividends and Capital Gain Tax Worksheet is less than line 15 of that worksheet.
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You qualify for the adjustment exception if you meet both of the following requirements:
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Line 7 of the Qualified Dividends and Capital Gain Tax Worksheet does not exceed:
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$200,300 if married filing jointly or qualifying widow(er);
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$100,150 if married filing separately;
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$164,550 if single; or
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$182,400 if head of household.
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The amount of your foreign source net capital gain, plus the amount of your foreign source qualified dividends is less than $20,000. For this purpose, ignore any capital gain distributions or qualified dividends you elected to include on Form 4952, line 4g.
You qualify for the adjustment exception if you meet both of the following requirements:
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Line 5 of the Qualified Dividends and Capital Gain Tax Worksheet does not exceed:
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$200,300 if you checked filing status box 6,
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$100,150 if you checked filing status box 3,4, or 5, or
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$164,550 if you checked filing status box 1 or 2.
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The amount of your foreign source net capital gain, plus the amount of your foreign source qualified dividends is less than $20,000.
Your foreign source net capital gain is the excess of your foreign source net long-term capital gain over your foreign source net short-term capital loss.
Enter the amount from:
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Line 13 of the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions, or
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Line 11 of the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040NR instructions.
Enter the amount from:
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Line 10 of the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions, or
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Line 8 of the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040NR instructions.
Complete all other lines as instructed on the worksheet.
If you completed the Qualified Dividends Tax Worksheet in the instructions for Form 1041 or you completed Part V of Schedule D (Form 1041), you must use the Worksheet for Line 17, below, to figure the amount to enter on line 17 if:
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You figured your tax using the Qualified Dividends Tax Worksheet, line 5 of that worksheet is greater than zero, and line 14 of your Qualified Dividends Tax Worksheet is less than line 15 of that worksheet, or
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You figured your tax using the Part V of Schedule D (Form 1041), line 23 of the Schedule D is greater than zero, and line 32 of the Schedule D is less than line 33.
Adjustment exception. If you qualify for the adjustment exception and you chose not to make adjustments to any foreign qualified dividends or foreign capital gains (or losses) that you have, you can elect not to adjust your qualified dividends and capital gains. You make this election by not completing the Worksheet for Line 17. You must make this election if you have any foreign qualified dividends or foreign capital gains (or losses) and you chose not to make any adjustments to those amounts when you completed lines 1a and 5. You qualify for the adjustment exception if:
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Line 5 of the Qualified Dividends Tax Worksheet or line 23 of Schedule D (Form 1041) does not exceed $7,850, and
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The amount of your foreign source net capital gain, plus the amount of your foreign source qualified dividends, is less than $20,000. For this purpose, ignore any foreign source qualified dividends or capital gains that you elected to include on Form 4952, line 4g.
Your foreign source net capital gain is the excess of your foreign source net long-term capital gain over your foreign source net short-term capital loss.
If you are not required to complete the Worksheet for Line 17 or you qualify for the adjustment exception and elect not to adjust your qualified dividends and capital gains, enter on line 17 of Form 1116 the estate's or trust's taxable income without the deduction for its exemption.
Enter the amount from line 11 of the Qualified Dividends Tax Worksheet or line 29 of Schedule D.
If you figured your tax using the Schedule D Tax Worksheet (in the Schedule D (Form 1040) instructions or in the Schedule D (Form 1041) instructions), you must use the Worksheet for Line 17 on page 18 to figure the amount of tax to enter on line 17 of Form 1116 if:
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Line 17 of the Schedule D Tax Worksheet is greater than zero, and
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Line 34 of the Schedule D Tax Worksheet is less than line 35.
Adjustment exception. If you qualify for the adjustment exception and you did not make adjustments to any foreign qualified dividends or foreign capital gains (or losses) that you have, you can elect not to adjust your qualified dividends and capital gains. You make this election by not completing the Worksheet for Line 17. You must make this election if you have any foreign qualified dividends or foreign capital gains (or losses) and you chose not to make any adjustments to those amounts when you completed lines 1a and 5. You qualify for the adjustment exception if:
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The amount of your foreign source qualified dividends plus the amount of your foreign source net capital gain is less than $20,000, and
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Line 17 of the Schedule D Tax Worksheet (Form 1040) is less than or equal to:
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$200,300 if married filing jointly or qualifying widow(er);
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$100,150 if married filing separately;
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$164,550 if single; or
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$182,400 if head of household
(or, for trusts and estates, line 17 of the Schedule D Tax Worksheet (Form 1041) is less than or equal to $7,850).
Your foreign source net capital gain is the excess of your foreign source net long-term capital gain over your foreign source net short-term capital loss. Ignore any foreign source qualified dividends or capital gains that you elected to include on Form 4952, line 4g, in determining the amount of your foreign source qualified dividends and net capital gain.
If you are not required to complete the Worksheet for Line 17 or you qualify for the adjustment exception and elect not to adjust your qualified dividends and capital gains, enter on line 17 of Form 1116 your taxable income without the deduction for your exemption (for example, the amount from Form 1040, line 41), minus any amount shown on Form 8914, line 2.
If you do need to complete the Worksheet for Line 17, do the following.
Complete all other lines as instructed on the worksheet.
| Caution: See the instructions for Line 17 beginning on page 17 before starting this worksheet. | |||||
| 1. | Individuals: Enter the amount from Form 1040, line 41 (minus any amount on Form 8914, line 2). If you are a nonresident alien, enter the
amount from Form 1040NR, line 38 (minus any amount on Form 8914, line 2). Estates and trusts: Enter taxable income without the deduction for your exemption |
1. | |||
| 2. | Enter your worldwide 28% gains (see instructions) | 2. | |||
| 3. | Multiply line 2 by 0.2000 | 3. | |||
| 4. | Enter your worldwide 25% gains (see instructions) | 4. | |||
| 5. | Multiply line 4 by 0.2857 | 5. | |||
| 6. | Enter your worldwide 15% gains and qualified dividends (see instructions) | 6. | |||
| 7. | Multiply line 6 by 0.5714 | 7. | |||
| 8. | Enter your worldwide 0% gains and qualified dividends (see instructions) | 8. | |||
| 9. | Add lines 3,5,7, and 8 | 9. | |||
| 10. | Subtract line 9 from line 1. Enter the result here and on Form 1116, line 17 | 10. | |||
If you are completing line 19 for separate category e (lump-sum distributions), enter the amount from line 5 of the Worksheet for Lump-Sum Distributions on page 4.
Do not complete line 19 for separate category c (section 901(j) income). See page 3.
For all other applicable categories, complete line 19 as follows.
The maximum foreign tax credit you can claim in the current year is generally limited to the allocated amount of U.S. tax imposed on the foreign income, or the actual amount of foreign tax paid or accrued on the foreign income (after reductions required on line 12), whichever is less. However, see Foreign Taxes Eligible for a Credit on page 2 for additional information.
If the amount on line 20 is smaller than the amount on line 13, see
Pub. 514 for more information on carryback and carryforward provisions, including examples.
Complete lines 22 through 25 in
Part IV only if you must complete more than one Form 1116 because you have more than one of the categories of income listed
above Part I.
Complete Part IV on only one Form 1116 (the one with the largest amount entered on line 21) to summarize the credits you figured on all of your Forms 1116. However, if you completed a Form 1116 for category e (lump-sum distributions) or c (section 901(j) income), do not use Part IV of that Form 1116 as your summary. Enter the credits from line 21 of all of your Forms 1116 on lines 22 through 25 of the Form 1116 with the largest amount entered on line 21 to summarize your credits. File the other Forms 1116 as attachments.
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