What is this adjustment?
Your gross income for the Foreign Tax Credit must include all income / gains and can't include any losses / deductions. If the income is tax-exempt (nontaxable retirement income, etc.), it doesn't need to be included.
This adjustment amount will modify your total income to (1) add back any losses or deductions that were factored into your total income but can't be included in gross income and (2) add in any income or gains that weren't already factored into your total income.
Example: You had $20,000 of wages, and sold two separate stocks in 2025. Stock 1 was sold for a loss of - $22,000. Stock 2 was sold for a gain of $1,000. You have a net capital loss of - $21,000 ($22,000 - $1,000), and it's limited to a loss of - $3,000 on your Form 1040. This makes your total income on Form 1040 equal $17,000 ($20,000 - $3,000). Your gross income for the Foreign Tax Credit needs to exclude the $3,000 loss and include any gains that haven't already been included in your income. So, your gross income will be calculated by taking your $17,000 income, adding back the $3,000 loss that was included in your total income, and adding the $1,000 gain from Stock 2 that wasn't included in your total income. So, your gross income would be $21,000 ($17,000 + $3,000 + $1,000).
This adjustment amount will modify your total income to (1) add back any losses or deductions that were factored into your total income but can't be included in gross income and (2) add in any income or gains that weren't already factored into your total income.
Example: You had $20,000 of wages, and sold two separate stocks in 2025. Stock 1 was sold for a loss of - $22,000. Stock 2 was sold for a gain of $1,000. You have a net capital loss of - $21,000 ($22,000 - $1,000), and it's limited to a loss of - $3,000 on your Form 1040. This makes your total income on Form 1040 equal $17,000 ($20,000 - $3,000). Your gross income for the Foreign Tax Credit needs to exclude the $3,000 loss and include any gains that haven't already been included in your income. So, your gross income will be calculated by taking your $17,000 income, adding back the $3,000 loss that was included in your total income, and adding the $1,000 gain from Stock 2 that wasn't included in your total income. So, your gross income would be $21,000 ($17,000 + $3,000 + $1,000).
