Form 1116, cap gains adjustment

Forum|Forum|2 years ago
February 5, 2024
1 reply
22 views

Does Proconnect make the adjustment to foreign capital gains automatically, or is it something we have to input? I believe I need to make this adjustment but it is not happening. I don't know whether to override or believe that Proconnect is correct?

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Best answer by itonewbie

Its on Sch D with the CGD, going to Line 7 on 1040

You didn't tell us but I suppose the gain from the sale of property is mostly, if not all, unrecaptured §1250, which got taxed at lower marginal rates because, as you said, your client is a 24% taxpayer. On that basis, there's no tax rate differential to adjust for either Line 1a or 18.

You mentioned previously that there is an adjustment for Line 1a. I think you may have mistaken. There is a statement for Line 1a but it probably only shows what it consists of and there'd be no adjustment.

itonewbie

Level 15

Are you referring to foreign-source qualified dividends and CGD? If so, ProConnect Tax does make the necessary adjustments when the conditions for exception are not met. If the conditions are met, however, it assumes an election not to adjust will be made. Either way, you'd find an informational diagnostic about that.

On the other hand, if your client has foreign-source capital gains/losses, you will need to compute the necessary adjustments offline and plug them in under Credits > Foreign Tax Credit (1116).

Part of the problem is that ProConnect Tax has not been programmed to identify whether CG/CL on Sch D is US or foreign source. And, heck, it won't even know your breakdown for gains vs losses when you choose to enter a lump sum for summary attachment (e.g. from Consolidated 1099), so you will need to do the grunt work yourself. Again, ProConnect Tax will generate an informational diagnostic to remind you that's something you need to consider if it applies to your client.

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

L

lw06880Author

Level 3

Hi. Thank you. Very helpful. Yes I have a foreign CGD over $20k. So I have to calculate the adjustment and input it in the FTC section.
My next problem is that I can see the adjustment to income on form 1116 but Proconnect has not adjusted the total income accordingly. So the denominator is incorrect, even though I selected to Force line 18 adjustment worksheet checkbox. Have you had any luck with working around this issue? I was on a 3 hour call trying to sort this line 18 worksheet but no resolution unfortunately. Any thoughts much appreciated

itonewbie

Level 15

Like I said, ProConnect Tax does manage adjustments for qualified dividends and CGD.

Who do you think Line 18 isn't adjusted? Have you checked the Worksheets?

While the adjustments for Line 1a are shown on the Statements, those for Line 18 are found on the Worksheets instead. And you should see that Line 18 will not tally with F.1040 when adjustments have been made.

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

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