Form 1116 - Gross Income From All Sources Calculation

The TaxActÂ® calculation of Line 3e Gross income from all sources of Federal Form 1116 Foreign Tax Credit is not necessarily the same amount as reflected on Line 6 of Federal Form 1040 Total income. This is because only gross amounts are taken into consideration (before subtracting losses and deductions).

For example, only gross receipts (less cost of goods sold) are taken from the Schedule C, only gross income is taken from the Schedule E, and only capital gains are taken from the Schedule D (i.e. any loss transactions on Schedule D must be added back to the amount from Line 6).

Per the IRS Instructions for Form 1116 Foreign Tax Credit (Individual, Estate, or Trust), page 16:

Lines 3d and 3e

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

To reconcile the amount on Line 3e of Form 1116 to the amount on Line 22 of Schedule 1 (Form 1040) in your return (if Line 13 of Schedule 1 (Form 1040) is a net capital LOSS):

1. Add the amount from Line 22 of Schedule 1 (Form 1040)
2. Add to this the net capital loss amount from Line 13 of Schedule 1 (Form 1040)
3. Add any capital gain amounts from Form 8949 (i.e. the individual transaction gain amounts).
4. If the return contains a Schedule C, subtract the amount on Line 12 of Schedule 1 (Form 1040) (add the amount if there is a loss reflected on Line 12), add the amount from Line 1d of Schedule C and then subtract the amount (if any) on Line 4 of Schedule C.  Note that you must do this even if Line 12 of Schedule 1 (Form 1040) reflects zero (i.e. due to having expenses for business use of your home in the return).

To reconcile the amount on Line 3e of Form 1116 to the amount on Line 22 of Schedule 1 (Form 1040) in your return (if Line 13 of Schedule 1 (Form 1040) is a net capital GAIN):

1. Add the amount from Line 22 of Schedule 1 (Form 1040)
2. Subtract from this the net capital gain amount from Line 13 of Schedule 1 (Form 1040)
3. Add any capital gain amounts from Schedule D (and Schedule D-1 if applicable) (i.e. the individual transaction gain amounts).
4. If the return contains a Schedule C, subtract the amount on Line 12 of Schedule 1 (Form 1040) (add the amount if there is a loss reflected on Line 12), add the amount from Line 1d of Schedule C and then subtract the amount (if any) on Line 4 of Schedule C.  Note that you must do this even if Line 12 of Schedule 1 (Form 1040) reflects zero (i.e. due to having expenses for business use of your home in the return).

Note. While the IRS does not more specifically define the calculation of "gross income from all sources", for Line 3e Federal Form 1116, we have calculated this amount in the same manner for many years without any problems resulting with that calculation. We are confident in that calculation; however, you can verify that with the IRS by contacting them at (800) 829-1040.

Note. The calculation for Line 3d Gross foreign source income is calculated in a similar manner (except only looking at the foreign amounts).