Form 1116, why do I have to adjust foreign dividend income number if I have over $20,000 in dividends/capital gains?
Tax Professional Answers
The reason the adjustment must be made is because Form 1116 was formulated to determine your tax credits assuming the use of the ordinary income tax rates rather than the lower tax rates afforded dividends and capital gains. Form 1116 limits credits to an estimate of what US tax liability arises from the income, so it assumes ordinary tax rates. Dividends and Capital gains are not subject to the ordinary tax rates but are favored with much lower rates requiring the above adjustment.
Meet Leading Tax Advisors
Federal Tax Credits & Incentives Practice Leader
New York, NY
CEO/Certified Financial Advisor
Rancho Santa Fe, CA
San Jose, CA
Long Beach/ Park City, CA