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Form 1116 Lines 2 to 5: Deductions, Expenses and Losses

Updated October 18, 2026. Quick answer: Lines 2 to 5 take away from the foreign income on line 1a the deductions that belong to it. Line 2 holds expenses that definitely relate to that income, line 3 a ratable share of other deductions, line 4 a share of interest expense, and line 5 foreign losses. The amounts come from your own deduction records and Schedule A or Schedule 1 where the instructions say so.

What lines 2 to 5 do

The instructions say “You must reduce your foreign gross income on line 1a by entering on lines 2 through 5:” two kinds of amounts: “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.” The income they reduce is the line 1a amount on the lines 1a and 1b page.

Standard deduction and excluded income

Two cautions apply. “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).” And “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.”

Line 2: expenses that definitely relate

The form’s caption is “Expenses definitely related to the income on line 1a (attach statement)”. The instructions say “Enter your deductions that definitely relate to the gross income from foreign sources shown on line 1a.” They give this 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.” They add “Attach a statement listing the separate expenses included on line 2.” And “Don’t include any interest expense on line 2.”

Lines 3a to 3g: a ratable share of other deductions

Line 3a is described as “Certain itemized deductions or standard deduction (see instructions)”. The instructions list which itemized deductions go there: “Medical expenses (line 4).” “General sales taxes.” “Real estate taxes for your home.” and “State and local personal property taxes.” Line 3b is “Other deductions (attach statement)”, and the instructions say “Enter on line 3b any other deductions that don’t definitely relate to any specific type of income”. Line 3c is the form’s “Add lines 3a and 3b”.

The pro rata share comes from three more lines. The instructions say “Line 3d. Enter your gross foreign source income from the category you checked above Part I of this Form 1116.” “Line 3e. Enter on line 3e in each column your gross income from all sources and all categories, both U.S. and foreign.” Then “Divide line 3d by line 3e and round off the result to at least four decimal places”. Line 3g is the form’s “Multiply line 3c by line 3f”. A computed illustration, not an IRS example: with line 3a at $10,000 and line 3b at $2,000, line 3c is $12,000. Line 3d at $20,000 over line 3e at $80,000 gives a line 3f of 0.25, and line 3g is then $3,000.

Lines 4a, 4b and 5: interest and losses

Line 4a is the form’s “Home mortgage interest (use the Worksheet for Home Mortgage Interest in the instructions)”. The instructions say “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.” Line 4b covers other interest: “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.” For line 4b, “each type of interest expense is apportioned separately using an “asset method.””

Line 5 is “Losses from foreign sources”. The instructions say “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.”

Where the number comes from

The line 2 amounts come from your records of expenses of the foreign activity. Lines 3a and 3b come from your standard or itemized deductions and your adjustments. The instructions limit state and local taxes: “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.” The overall Form 1040 deduction choice is explained at Form 1040 line 12.

Where it goes next

Line 6 then says “Add lines 2, 3g, 4a, 4b, and 5”. That total and the subtraction from line 1a are on the lines 6 and 7 page.

Edition and line numbers

This page reads the 2025 Form 1116, Foreign Tax Credit (Individual, Estate, or Trust), and its 2025 instructions, the current files irs.gov served on 2026-10-18. They are the files for the tax year 2025 return, filed in 2026. The form’s own header says “Attach to Form 1040, 1040-SR, 1040-NR, 1041, or 990-T.” Check the tax year printed on the form you are filling in and use the line numbers on that year’s form, because a different year’s form can number or word its lines differently.

Common mistakes

  • Using the itemized amount twice. The instructions say “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).”
  • Putting interest on line 2. The instructions say “Don’t include any interest expense on line 2.”
  • Skipping the supporting statement. The instructions say “Attach a statement listing the separate expenses included on line 2.”

Related: Form 1116, Form 1040 line 12, Form 2555, and Schedule 3 line 1.

Sources

Read from the IRS documents linked above on October 18, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.

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