Form 1116 - Gross Income From All Sources Calculation

The TaxAct® 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 U.S. Individual Income Tax Return. 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 Schedule C (Form 1040) Profit or Loss From Business, only gross income is taken from Schedule E (Form 1040) Supplemental Income and Loss, and only capital gains are taken from Schedule D (Form 1040) Capital Gains and Losses (i.e. any loss transactions on Schedule D must be added back to the amount from Line 6).

Per IRS Instructions for Form 1116, 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 8 of Schedule 1 (Form 1040) Additional Income and Adjustments to Income in your return (if Line 4 of Schedule 1 (Form 1040) is a net capital LOSS):

1. Add the amount from Line 8 of Schedule 1 (Form 1040).
2. Add to this the net capital loss amount from Line 4 of Schedule 1 (Form 1040).
3. Add any capital gain amounts from Form 8949 Sales and Other Dispositions of Capital Assets (i.e. the individual transaction gain amounts).
4. If the return contains a Schedule C, subtract the amount on Line 3 of Schedule 1 (Form 1040) (add the amount if there is a loss reflected on Line 3), add the amount from Line 1d of Schedule C and then subtract the amount (if any) on Line 4 of Schedule C. Note. You must do this even if Line 3 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 8 of Schedule 1 (Form 1040) in your return (if Line 4 of Schedule 1 (Form 1040) is a net capital GAIN):

1. Add the amount from Line 8 of Schedule 1 (Form 1040).
2. Subtract from this the net capital gain amount from Line 4 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 3 of Schedule 1 (Form 1040) (add the amount if there is a loss reflected on Line 3), add the amount from Line 7 of Schedule C, then subtract the amount (if any) on Line 5 of Schedule C. Note. You must do this even if Line 3 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).

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