Support CenterHow to calculate the Capital Gain Adjustment amount on Form 1040
🔍 How to calculate the Capital Gain Adjustment amount on Form 1040
The capital gains adjustment is based on a formula in the IRS instructions for Form 1116.
Instruction for Form 1116, page 8
⚠️ Before You Begin
To make the capital gains adjustment, you will need to know:
- Your foreign source qualified dividends or capital gain distributions in each separate category
- The tax rate that applies to each category (0%, 15%, or 20%)
📊 Step-by-Step Guide
Step 1: Identify the category and applicable tax rate
Use this when you need to determine which multiplier to use for each separate category.
To adjust your foreign source qualified dividends or capital gain distributions, you will work in each separate category.
Step 2: Multiply by the correct adjustment factor
Use this when you need to calculate the adjustment amount for each category.
Multiply your foreign source qualified dividends or capital gain distributions in each separate category by:
- 0.4054 if the foreign source qualified dividends or capital gain distributions are taxed at a 15% rate
- 0.5405 if they are taxed at a 20% rate
Step 3: Enter the results on the correct line
Use this when you need to report the calculated adjustment on Form 1116.
Include the results on line 1a of the applicable Form 1116.
Step 4: Handle the 0% rate category
Use this when you need to apply the rule for categories taxed at 0%.
You adjust your foreign source qualified dividends or capital gain distributions taxed at the 0% rate by not including them on line 1a.
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