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Instructions for Form 1116 2006 Tax Year

Specific Instructions

This is archived information that pertains only to the 2006 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

Table of Contents

Part I—Taxable Income or Loss From Sources Outside the United States

Caution
Part I must be completed by all filers unless specifically indicated otherwise in these instructions.

Line l—Foreign Country or U.S. Possession

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.

Lines 1a and 1b—Foreign Gross Income

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 l. 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 income) and wages (general limitation income) from foreign sources, you must complete two Forms 1116. On one Form 1116, check box a (passive income), enter the dividends on line 1a, and write “Dividends” on the dotted line. On the other Form 1116, check box j (general limitation 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 the summary Part IV on one Form 1116.

Caution
If you are filing a Form 1116 that includes foreign source qualified dividends or foreign source capital gains or losses, see Foreign Qualified Dividends and Capital Gains (Losses) starting on page 5.

Line 1b

You must check the box on line 1b if all of the following apply.

  • The income on line 1a is compensation for services you performed as an employee.

  • Your total employee compensation from both U.S. and foreign sources was $250,000 or more.

  • 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.

  • The specific compensation income or the specific fringe benefit for which the alternative basis is used.

  • For each such item, the alternative basis of allocation of source used.

  • For each such item, a computation showing how the alternative allocation was computed.

  • A comparison of the dollar amount of the compensation sourced within and without the U.S. 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.

Lines 2 Through 5—Deductions and Losses

You must reduce your foreign gross income on line 1a by entering on lines 2 through 5:

  • Any of your deductions that definitely relate to that foreign income, and

  • 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 include:

  • 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 Hurricane Katrina displaced individuals from Form 8914, line 6.)

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.

Itemized deduction limit.   If you must reduce the total amount of your itemized deductions on line 28 of Schedule A (Form 1040) because your adjusted gross income was more than $150,500 ($75,250 if married filing separately), you must reduce each of the itemized deductions that are subject to the reduction by the reduction percentage before you complete lines 2, 3a, and 4a.

  Use the Itemized Deductions Worksheet in the Instructions for Schedule A (Form 1040) to figure the reduction percentage. Divide the amount on line 9 of the worksheet (the overall reduction) by the amount on line 3 of the worksheet (total itemized deductions subject to the reduction). This is your reduction percentage. Apply this percentage (expressed as a decimal rounded to at least four places) to each itemized deduction subject to the reduction to determine the amount to enter on the appropriate line of
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 $210,500. 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 9 of the worksheet is $1,800. 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 9 ($1,800) by the amount on line 3 ($20,000). This is your reduction percentage (9%). You must reduce your $12,000 deduction by $1,080 (9% x $12,000). The reduced deduction of $10,920 ($12,000 - $1,080) is the amount to enter on line 3a of Form 1116. Make a similar computation to figure the amount of definitely related itemized deductions ($7,280) to enter on line 2.

Line 2

Caution
Before you complete line 2, read Itemized deduction limit 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.


Worksheet for Home Mortgage Interest
—Line 4a
Keep for Your Records
Note: Before you complete this worksheet, read the instructions for line 4a on page 14.
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 12 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.

Lines 3a and 3b

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:

  • Are not shown on line 2, and

  • Are not definitely related to your U.S. source income.

Line 3a.   Before you complete line 3a, read Itemized deduction limit starting on page 13.

  Enter the following itemized deductions (from Schedule A (Form 1040)) on line 3a.

  • Medical expenses (line 4)

  • Real estate taxes (line 6)

  
Caution
 At the time these instructions went to print, Congress was considering legislation that would extend the deduction for general sales taxes that expired at the end of 2005. To find out if this legislation was enacted, and for more details, go to www.irs.gov, click on More Forms and Publications , and then on What's Hot in forms and publications , or see Pub. 553.

  If the legislation is enacted, include the deduction for general sales taxes in the above list.

  If you do not itemize deductions, enter your standard deduction on
line 3a.

Line 3b.   Enter on line 3b any other deductions that do not definitely relate to any specific type of income. Examples of these deductions are the deduction for alimony paid from Form 1040, line 31a, and the additional exemptions for housing Hurricane Katrina displaced individuals from Form 8914, line 6.

Lines 3d and 3e

For lines 3d and 3e, gross income means income without regard to deductions and losses.

Line 3d.   Enter your gross foreign source income from the category you checked above Part I of this
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.

Line 3e.   Enter on line 3e in each column your gross income from all sources and all categories, both U.S. and foreign. 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 are a nonresident alien, include on both lines 3d and 3e your income that is not effectively connected with a trade or business in the United States.

  If you had to adjust your foreign qualified dividends or capital gains (see page 5), include those amounts without regard to any adjustments.

Line 3f

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.”

Line 4a

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) is apportioned using a gross income method. Use the worksheet on page 13 to figure the amount to enter on line 4a. Before you complete the worksheet, read Itemized deduction limit on page 13.

Line 4b

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.

Line 5

If you have capital losses from foreign sources, see Foreign Qualified Dividends and Capital Gains (Losses) starting on page 5 for information on adjustments you may be required to make.

Part II—Foreign Taxes Paid or Accrued

Caution
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 (o), and complete columns (t) through (x) for each foreign country indicated in Part I.

Note.

If you are taking a credit for additional taxes paid or accrued as the result of an audit by a foreign taxing authority or you are filing an amended return reflecting a foreign tax refund, attach a statement to Form 1116 identifying these taxes.

Part III—Figuring the Credit

Line 10

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 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.

You cannot carry a credit back to a tax year for which you claimed a deduction, rather than a credit, for foreign taxes paid or accrued. However, you must reduce the amount of any carryback or carryforward by the amount that you would have used had you chosen to claim a credit rather than a deduction in that year.

If, for any year, you elected to claim the foreign tax credit without filing Form 1116 (as explained on page 1), the following rules apply.

  • 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.

  • The carryback-carryforward period is not extended if you are unable to use a carryback or carryforward because you made the election.

  • 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.

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.

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).

See Pub. 514 for more information on carryback and carryforward provisions, including examples.

Line 12

You may have to reduce the foreign taxes you paid or accrued by the following items.

  • 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.

  • 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.

  • 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.

  • 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.

  • 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).

  • 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.

  • 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).

  • 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).

  • 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 32 . Attach a statement to Form 1116 showing in detail how you figured the reduction.

    For more information, see Form 5713 and its instructions.

Line 14

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.

Line 15

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:

  1. 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 must recharacterize the income you receive in the loss category in later years. See Recharacterization of income on this page. 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) and for later years you must follow the rules described under Recapture of prior year overall foreign loss on this page.

    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 2006, you completed three Forms 1116. The first had a loss from general limitation income of $2,000 on line 14, the second had income of $4,000 from passive sources on line 14, and the third had income of $1,000 from high withholding tax interest on line 14. You must allocate the $2,000 loss between the passive income and the high withholding tax interest in the same proportion as each category's income bears to the total foreign income.

    The amount of the loss that would reduce passive 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 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 high withholding tax interest would be 20% ($1,000/$5,000) of the $2,000 loss or $400. Include the $400 in parentheses on line 15 of the high withholding tax interest 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 income and the high withholding tax interest categories, and no reduction was made to U.S. source income.

    If you receive general limitation income in a later year, you must recharacterize all or part of that income as passive income and high withholding tax interest in that later year. See the example under Recharacterization of income on this page.

  2. Recapture of prior year overall foreign loss. 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 treated as U.S. source income in each following tax year. The part that is treated as U.S. source income is the smallest of:

    1. The amount of overall foreign loss not recaptured in earlier years,

    2. 50% (or more, if you choose) of your taxable income from foreign sources, or

    3. The amount from line 14, less any adjustment for allocation of losses from other categories, as described under Allocation of foreign losses on page 15.

    Reduce the income on line 14 by including (in parentheses) on line 15 the smallest of a, b, or c above. This is the amount of the recapture. 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 recaptured and the dollar amount of the recapture.

Dispositions of certain property.    If you recognized 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 recapture as U.S. source income to the extent of 100% of your foreign source taxable income. 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 under the two preceding paragraphs, (b) the remaining amount of the overall foreign loss not recaptured in earlier years or in the current year under the two preceding paragraphs, or (c) the amount from line 14, less any adjustment for allocation of losses from other categories and any adjustment under the two preceding paragraphs. 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 limitation overall foreign loss account. See Regulations section 1.904(f)-1(b) for more information.

  3. Recharacterization of income. 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 2006 all or part of any income you receive in 2006 in that loss category. You recharacterize the income by:

  • 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

  • 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 this page, in the next year (2007), you have $5,000 of general limitation income, $3,000 of passive income, and $500 of high withholding tax interest. Because $1,600 of the general limitation loss was used to reduce your passive income in 2006, $1,600 of your 2007 general limitation income must be recharacterized as passive income. Similarly, $400 of the general limitation income must be recharacterized as high withholding tax interest. On your 2007 Form 1116 for passive income, you would include $1,600 on line 15. On your 2007 Form 1116 for high withholding tax interest, you would include $400 on line 15. On your 2007 Form 1116 for general limitation income, you would include ($2,000) on line 15.

  
Tip
 Recharacterizing income from a separate category does not result in recharacterizing any tax.

  4. Allocation of U.S. losses. If you have a net loss from U.S. sources in 2006, proportionately allocate that loss among the separate categories of your foreign income. Reduce the income on line 14 (adjusted by any of the other adjustments previously mentioned in these line 15 instructions) by including (in parentheses) on line 15 the allocable portion of any U.S. loss. 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:

  1. The total of the amounts entered on line 14 for each Form 1116 you are filing, over

  2. The amount entered on line 17 of the Form 1116.

Line 17

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 Individuals Displaced by Hurricane Katrina.

Individuals Who Completed a Qualified Dividends and Capital Gain Tax Worksheet

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 this page to figure the amount to enter on line 17 if:

  1. You file Form 1040 and

    1. Line 7 of your Qualified Dividends and Capital Gain Tax Worksheet is greater than zero, and

    2. Line 17 of your Qualified Dividends and Capital Gain Tax Worksheet is less than line 18 of that worksheet, OR

  2. You file Form 1040NR and

    1. Line 5 of your Qualified Dividends and Capital Gain Tax Worksheet is greater than zero, and

    2. Line 15 of your Qualified Dividends and Capital Gain Tax Worksheet is less than line 16 of that worksheet.

Adjustment exception.    If you qualify for the adjustment exception, you do not need to use the worksheet for line 17 to figure the amounts to enter on line 17.

  If you do not need to complete the Worksheet for Line 17, 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 6.

Adjustment exception for Form 1040 filers.    You qualify for the adjustment exception if you meet both of the following requirements:

  1. Line 7 of the Qualified Dividends and Capital Gain Tax Worksheet does not exceed:

    • $188,450 if married filing jointly or qualifying widow(er);

    • $94,225 if married filing separately;

    • $154,800 if single; or

    • $171,650 if head of household.

  2. 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.

Adjustment exception for Form 1040NR filers.   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 does not exceed:

    1. $188,450 if you checked filing status box 6,

    2. $94,225 if you checked filing status box 3,4, or 5, or

    3. $154,800 if you checked filing status box 1 or 2.

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

tip
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.

Completing the Worksheet for Line 17.   If you do need to complete the Worksheet for Line 17, do the following.

Lines 2 through 5.   Skip these lines.

Line 6.   Enter the amount from:

  • Line 14 of the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions, or

  • Line 12 of the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040NR instructions.

Complete all other lines as instructed on the worksheet.

Estates and Trusts That Completed a Qualified Dividends Tax Worksheet or Schedule D

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 on this page to figure the amount to enter on line 17 if:

  1. You figured your tax using the Qualified Dividends Tax Worksheet, line 5 of that worksheet is greater than zero, and line 15 of your Qualified Dividends Tax Worksheet is less than line 16 of that worksheet, or

  2. 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 33 of the Schedule D is less than line 34.

Adjustment exception. If you qualify for the adjustment exception, you do not need to use the Worksheet for Line 17 to figure the amount to enter on line 17. You qualify for the adjustment exception if:

  1. Line 5 of the Qualified Dividends Tax Worksheet or line 23 of Schedule D (Form 1041) does not exceed $7,400, and

  2. 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.

Tip
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 do not need to complete the Worksheet for Line 17, enter on line 17 of Form 1116 the estate's or trust's taxable income without the deduction for its exemption.

Completing the Worksheet for Line 17.   If you do need to complete the Worksheet for Line 17, do the following.

Lines 2 through 5.   Skip these lines.

Line 6.   Enter the amount from line 12 of the Qualified Dividends Tax Worksheet or line 30 of Schedule D.

  Complete all other lines as instructed on the worksheet.

Taxpayers Who Completed the Schedule D Tax Worksheet

If you figured your tax using the Schedule D Tax Worksheet (in the Schedule D (Form 1040) instructions or in the Form 1041 instructions), you must use the Worksheet for Line 17 on page 17 to figure the amount of tax to enter on line 17 of Form 1116 if:

  • Line 17 of the Schedule D Tax Worksheet is greater than zero, and

  • Line 35 of the Schedule D Tax Worksheet is less than line 36.

Adjustment exception. If you qualify for the adjustment exception, you do not need to use the Worksheet for Line 17 to figure the amount to enter on line 17. You qualify for the adjustment exception if:

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

  2. Line 17 of the Schedule D Tax Worksheet (Form 1040) is less than or equal to:

  • $188,450 if married filing jointly or qualifying widow(er);

  • $94,225 if married filing separately;

  • $154,800 if single; or

  • $171,650 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 $7,400).

Tip
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 do not need to complete the Worksheet for Line 17, 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 6.

If you do need to complete the Worksheet for Line 17, do the following.

Line 2.   Enter the amount (if any) from line 32 of the Schedule D Tax Worksheet.

Line 4.   Enter the amount (if any) from line 29 of the Schedule D Tax Worksheet.

Line 6.   Enter the amount (if any) from line 23 of the Schedule D Tax Worksheet.

  Complete all other lines as instructed on the worksheet.


Worksheet for Line 17 (Worldwide Qualified Dividends and Capital Gains)
Keep for Your Records
Caution: See the instructions for Line 17 beginning on page 16 before starting this worksheet.
1. Individuals: Enter the amount from Form 1040, line 41 (minus any amount on Form 8914, line 6). If you are a nonresident alien, enter the amount from Form 1040NR, line 38 (minus any amount on Form 8914, line 6).
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. Add lines 3, 5, and 7 8.  
9. Subtract line 8 from line 1. Enter the result here and on Form 1116, line 17 9.  

Line 19

If you are completing line 19 for separate category g (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 h (section 901(j) income). See page 3.

For all other applicable categories, complete line 19 as follows.

Form 1040 filers.   Enter the amount from Form 1040, line 44, less any tax included on line 44 from Form 4972.

Form 1040NR filers.   Enter the amount from Form 1040NR, line 41, less any tax included on line 41 from Form 4972.

Form 1041 filers.   Enter the amount from Form 1041, Schedule G, line 1a.

Line 21

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.

Part IV—Summary of Credits From Separate Parts III

Complete lines 22 through 29 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 to summarize the credits you figured on all of your Forms 1116. However, if you completed a Form 1116 for category g (lump-sum distributions) or h (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 29 of the Form 1116 you are using to summarize your credits. File the other Forms 1116 as attachments.

Line 31

Enter the smaller of line 19 or line 30.

Note.

Generally, line 30 will exceed line 19 only if you have U.S. capital gains or qualified dividends that are subject to the capital gain rate differential (figured in the Worksheet for Line 17 on page 17) .

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