How do I make the qualified foreign source dividend adjustment on Form 1116?

Forum|Forum|5 years ago
September 22, 2020
1 reply
18 views

I have qualified foreign source dividends, but because I qualified for the "adjustment exception", Lacerte didn't make any adjustment to Foreign Source Income or total income in calculating the FTC limitation. (It tells me that in the Diagnostics.) However, I think I get a better answer (I get to use more credit) if I make the adjustment. Most of the dividends are coming from K-1s; I don't see anywhere on the K-1 input screens (or the 1099-DIVs) to force the adjustment. I also can't find any box to check to make/not make the election. Do I have to make this adjustment manually in Lacerte?

Lacerte Tax

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Best answer by itonewbie

If you still want to make the adjustment, the entries are on Screen 35.1 under the Gross Income Within Country section.

itonewbie

Level 15

That adjustment is made on Line 1a of 1116.

The question is why you believe you "will get to use more credit" if an adjustment were to be made?

If you understand what this does, you should be aware that it is meant to adjust for the tax differential between CGT and the graduated tax rates, which has the effect of bringing down the limitation.

If your client qualifies for §904(j), he/she may then claim foreign tax credit without filing a F.1116 and without regard to the limitation that would otherwise apply.

---------------------------------------------------------------------------------Still an AllStar

itonewbieAnswer

Level 15

If you still want to make the adjustment, the entries are on Screen 35.1 under the Gross Income Within Country section.

---------------------------------------------------------------------------------Still an AllStar

PhoebeRoberts

Intuit Community Champion

I personally just put the qualified foreign dividends from K-1s into one of the Screen 12 inputs, because it acts as an {A]dustment there, rather than an [O]verrride. Lacerte is entirely willing to accept nonsensical input, like "I have $30 of ordinary dividends, $29 of which are foreign source, and $30 of qualified dividends, $900 of which are foreign source" in the Foreign Tax Credit input section of Screen 12. Crtl+E means I can enter one line for the part that actually belongs to those dividends and one for the K-1 piece, and using the first Screen 12 item that's linked to the appropriate 1116 makes it easy to find the input.

I try to save my overrides for things with no workarounds, because being able to tie Lacerte's calculated result to my workpapers is a good quality control practice.

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