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How to calculate the Capital Gain Adjustment amount on Form 1040

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The capital gains adjustment is based on a formula in the IRS instructions for Form 1116

Instruction for form 1116, page 8

How to make adjustments. To adjust your foreign source qualified dividends or capital gain distributions, 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

rate of 15%, and by 0.5405 if they are taxed at a 20% rate. Include the results on line 1a of the applicable Form 1116. 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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