Specify ▶

Short-term Long-term Short-term Long-term

1. Separate category rate group gain (or loss) . . . . . . . . . . . . . . . 1.

2. Separate category gain (or loss) 2.

3. Foreign source capital gain net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.

4. Capital gain net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.

5. Total U.S. capital loss adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.

6. Separate category adjustment . . . . . . . . . . . . . . . . . 6.

7. Rate group factor . . . . . . . . . . . 7.

8. Rate group adjustment . . . . . . 8.

Instructions for Line 2 Worksheet

Line 1. Enter your gains and losses from line 1 of Worksheet B. Enter a loss as a negative amount (in parentheses).

Line 2. For each separate category, combine the amounts from line 1. Enter a loss as a negative amount (in parentheses).

Line 3. Combine the amounts from line 2 of this worksheet. If the result is zero or less, stop here. Don’t enter any amount on line 2 of Worksheet B.

Line 4. Enter the amount from line 16 of Schedule D (Form 1040), less the portion of net capital gain you included on Form 4952, line 4g. If the amount entered on line 4 is zero or less, stop here. Don’t continue with this worksheet or Worksheet B. Instead, complete Worksheet A.

Estates and trusts: Enter the amount from line 19 of Schedule D (Form 1041), less any amount shown on line 25 of that Schedule D. If the amount entered on line 4 is zero or less, stop here. Don’t continue with this worksheet or Worksheet B. Instead, complete Worksheet A.

Line 5. Subtract line 4 from line 3 and enter the result on line 5. If the result is zero or less, stop here. Don’t enter any amount on line 2 of Worksheet B.

Line 6.

• If only one separate category has a positive amount on line 2, enter the amount from line 5 on line 6 (in the column for the separate category with the positive amount on line 2).

• If both separate categories have positive amounts on line 2, divide each amount on line 2 by line 3. Multiply each result by line 5. Enter the results on line 6 in the appropriate columns.

Line 7. For each separate category, the following rules apply.

• If you entered an amount on line 6 and you entered positive amounts in both the short-term and long-term columns on line 1, divide each positive amount on line 1 by line 2 and enter the results in the appropriate columns.

• Leave line 7 blank if you didn’t enter an amount on line 6 or only one column on line 1 has a positive amount.

Line 8. For each separate category, the following rules apply.

• If you entered amounts on line 7, multiply each amount on line 7 by line 6. Enter the results in the appropriate columns on line 8 of this worksheet and on line 2 of Worksheet B.

• If line 7 is blank, enter the amount fr om line 6 in the same column on line 8 as the column that has a gain on line 1. Also, enter the amount on line 2 of Worksheet B in the appropriate column. If line 6 is blank, don’t enter any amount on line 8 of this worksheet or line 2 of Works heet B.

Instructions for Form 1116 (2025) 15

Line 15 Worksheet (For Line 15 of Worksheet B) Keep for Your Records

1. Enter your net short-term capital gain (if any) from U.S. sources. To determine this amount, subtract your short-term capital losses from U.S. sources from your short-term capital gains from U.S. sources. If the result is zero or a loss, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.

2. If you entered a short-term gain on line 3 of Worksheet B, enter that amount here . . . . . . . . . . . . . . . . . . . . . . . . . 2.

3. Add lines 1 and 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.

4. Did you enter a short-term capital loss on line 1 of Worksheet B for one (but not both) of the separate

categories?

Yes. Complete lines 5–10 and skip the rest of this worksheet.

No. Skip lines 5–10 and go to line 11.

5. Enter the short-term capital loss from line 1 of Worksheet B (enter the loss as a positive amount) . . . . . . . . 5.

6. Enter the gain, if any, determined on line 3. If line 3 isn’t a gain, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.

7. Subtract line 6 from line 5. If zero or a loss, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.

8. Multiply line 7 by 0.4054 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.

9. Enter the smaller of line 5 or line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.

10. Add lines 8 and 9. Enter the result here and on line 15 of Worksheet B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.

11. Is the amount on line 1 zero?

Yes. Multiply each short-term loss by 0.4054. Enter the results on line 15 of Worksheet B. Skip the rest of this worksheet.

No. Go to line 12.

12. Enter your short-term loss from column (1) of Worksheet B, line 1 (enter the loss as a positive amount) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.

13. Enter your short-term loss from column (3) of Worksheet B, line 1 (enter the loss as a positive amount) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.

14. Add lines 12 and 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.

15. Enter the gain determined on line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.

16. Subtract line 15 from line 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.

Is the result zero or less?

Yes. Skip the rest of this worksheet. Enter each short-term loss from line 1 on line 15 of Worksheet B, in the applicable column, without adjustment (that is, each short-term loss you enter on line 15 of Worksheet B will be the same as the short-term loss you entered on line 1 of Worksheet B).

No. Complete lines 17–22.

17. Multiply line 16 by 0.4054 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.

18. Add lines 15 and 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.

19. Divide line 12 by line 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.

20. Multiply line 19 by line 18. Enter the result here and in column (1) of Worksheet B, line 15 . . . . . . . . . . . . . . . . . . 20.

21. Divide line 13 by line 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.

22. Multiply line 21 by line 18. Enter the result here and in column (3) of Worksheet B, line 15 . . . . . . . . . . . . . . . . . . 22.

16 Instructions for Form 1116 (2025)

and enter “Wages” on the dotted line. Complete Parts I, II, and III of each Form 1116. Then, complete Part IV on the Form 1116 with the larger amount entered on line 24.

Caution: If you are filing a Form 1116 that includes foreign source qualified dividends or foreign source capital gains or losses, see Foreign Qualified Dividends and Capital Gains (Losses) , earlier.

Line 1b

You must check the box on line 1b if all of the following apply.

• The income on line 1a is compensation for services you performed as an employee.

• Your total employee compensation from both U.S. and foreign sources was $250,000 or more.

• You used an alternative basis (discussed in Pub. 514) to determine the source of the compensation entered on line 1a.

In addition, attach to Form 1116 a statement that contains the following information.

• Your name and social security number (written across the top of the statement).

• The specific compensation income or the specific fringe benefit for which the alternative basis is used.

• For each such item, the alternative basis of allocation of source used.

• For each such item, a computation showing how the alternative allocation was computed.

• A comparison of the dollar amount of the compensation sourced within and without the United States under both the alternative basis and the time or geographical basis for determining the source.

You must keep documentation showing why the alternative basis more properly determines the source of the compensation.

Lines 2 Through 5—Deductions and Losses You must reduce your foreign gross income on line 1a by entering on lines 2 through 5:

• Any of your deductions that definitely relate to that foreign income; and

• A ratable share of your other deductions that don’t definitely relate to that foreign income, any other foreign income, or U.S. source income.

If you don’t itemize deductions, enter your standard deduction on line 3a, and don’t enter on lines 2 through 5 any deductions that would have been reported on Schedule A (Form 1040). Don’t include deductions and losses related to exempt or excluded income such as foreign earned income you have excluded on Form 2555 on lines 2 through 5.

Special rules apply to the allocation of R&E expenditures. See Regulations section 1.861-17.

If the law of a U.S. state to which you pay income taxes doesn’t specifically exempt foreign source income from tax, you may be required to make a special allocation of state taxes you paid. See Pub. 514 for more information.

Caution: The deduction for state and local taxes on Schedule A (Form 1040), lines 5a through 5c, is limited. See the Instructions for Schedule A (Form 1040). Don’t include more state and local taxes on Form 1116, lines 2 and 3a, than the amount reported on Schedule A (Form 1040), line 5e.

Line 2

Enter your deductions that definitely relate to the gross income from foreign sources shown on line 1a. For example, if you are reporting foreign business income on line 1a, include on line 2 business expenses such as supplies and advertising incurred as part of operating the foreign business. Also include on line 2 state and local income taxes related to foreign source income. For more information, see Pub. 514 and section 861 and the regulations under that section. Attach a statement listing the separate expenses included on line 2.

Don’t include any interest expense on line 2. See lines 4a and 4b for special rules for interest expense.

Lines 3a and 3b

Some deductions don’t definitely relate to either your foreign source income or your U.S. source income. Enter on lines 3a and 3b any deductions (other than interest expense) that:

• Aren’t shown on line 2, and

• Aren’t definitely related to your U.S. source income.

Line 3a. Include the following itemized deductions (from Schedule A (Form 1040)) on line 3a.

• Medical expenses (line 4).

• General sales taxes.

• Real estate taxes for your home.

• State and local personal property taxes. If you don’t itemize deductions, enter your standard deduction on line 3a.

Line 3b. Enter on line 3b any other deductions that don’t definitely relate to any specific type of income (for example, deductions shown on Schedule 1 (Form 1040), Part II, Adjustments to Income). Don’t include the enhanced deduction for seniors shown on Schedule 1-A (Form 1040), line 37. The qualified passenger vehicle loan interest deduction reported on Schedule 1-A (Form 1040), line 30, is reported on line 4b.

Attach a statement listing the separate expenses included on lines 3a and 3b.

Lines 3d and 3e

For lines 3d and 3e, gross income means the total of your gross receipts (reduced by cost of goods sold), total capital and ordinary gains (before subtracting any losses), and all other income (before subtracting any deductions).

Line 3d. Enter your gross foreign source income from the category you checked above Part I of this Form 1116. Include any foreign earned income you have excluded on Form 2555 but don’t include any other exempt income.

If you had income from more than one country, you must enter income from only one country in each column.

If you had to adjust your foreign qualified dividends or capital gains (discussed earlier), include those amounts without regard to any adjustments.

Line 3e. Enter on line 3e in each column your gross income from all sources and all categories, both U.S. and foreign. “Gross income from all sources” is a constant amount (that is, you will enter the same amount on line 3e for each column of all Forms 1116 that you file). Include any foreign earned

Instructions for Form 1116 (2025) 17

income you have excluded on Form 2555 but don’t include any other exempt income.

If you are a nonresident alien, include on both lines 3d and 3e your income that isn’t effectively connected with a trade or business in the United States.

If you had to adjust your foreign qualified dividends or capital gains (discussed earlier), include those amounts without regard to any adjustments.

Line 3f

Divide line 3d by line 3e and round off the result to at least four decimal places (for example, if your result is 0.8756782, round off to 0.8757, not to 0.876 or 0.88). Enter the result, but don’t enter more than “1.”

Line 4a

If your gross foreign source income (including income excluded on Form 2555) doesn’t exceed $5,000, you can allocate all of your interest expense to U.S. source income. Otherwise, deductible home mortgage interest including points is apportioned using a gross income method. Use the Worksheet for Home Mortgage Interest to figure the amount to enter on line 4a.

Line 4b

Other interest expense includes investment interest, interest incurred in a trade or business, passive activity interest, deductible student loan interest, and qualified passenger vehicle loan interest. If you are a U.S. citizen, a resident alien, or a domestic estate, and your gross foreign source income (including any income excluded on Form 2555) doesn’t exceed $5,000, you can allocate all of your interest expense to U.S. source income. Otherwise, each type of interest expense is apportioned separately using an “asset method.” See Pub. 514 for more information.

Example. You have investment interest expense of $2,000. Your assets of $100,000 consist of stock generating U.S. source income (adjusted basis, $40,000) and stock generating foreign source income (adjusted basis, $60,000). You apportion 40% ($40,000/$100,000) of $2,000, or $800, of your investment interest to U.S. source income and 60%

($60,000/$100,000) of $2,000, or $1,200, to foreign source income. In this example, you will enter the $1,200 apportioned to foreign source income on line 4b. You wouldn’t enter the $800 apportioned to U.S. source income on any line of Part I of Form 1116.

Line 5

If you have capital losses from foreign sources, see Foreign Qualified Dividends and Capital Gains (Losses), earlier, for information on adjustments you may be required to make.