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Form 1116, Line 16 (Adjustments to Line 15) - Foreign Tax Credit (FTC) Experts

Level 2

I've always found line 16 (adjustments) to be the most difficult part of the Foreign Tax Credit.  Is an adjustment needed when there's just one category of foreign income (passive) LTCG with net US source capital loss? 

Taxpayer: High Income (over $364k married) with foreign $447k LTCG on sale of per. use real estate (vac. home, so no depr. recap.).  A US brokerage account with net US losses of $86k (LT & ST).  No other foreign income.  

Line 1a (Gross Foreign Income) required adjustment using the IRS 1116 Wkst B due to the large foreign LTCG and net US source cap losses and with high marginal tax rate TP.  Line 1a is reduced from $447k (foreign LTCG) to $191k with the -256k adjustment.  

Line 18 No adjustment needed as Lacerte calcs the reduction for LTCG & Qual Divs taxed at 15% & 20% which are lower than taxpayer's top marginal rate.  Taxable income is reduced from $873k (1040 line 15) to $695k on this line.  (Seems like this was already accounted for with a lower amount on line 1a.)

Now for Line 16 (adjustments), I believe this would only pertain to more than one category of foreign source income with one at a loss.  So, I don't believe it applies in this case.  But, does the US net source CL which lowered line 1a factor into this line 16?  

Thanks in advance to any form 1116 experts!  This maybe my first with US CL offsetting some of a foreign LTCG.  On a side note, it's appears selling US CLs to offset foreign CG may not always be best since it results in a lower FTC.

FYI - Line 3s (certain itemized deductions) was adjusted due to CA taxing this foreign income, but that wasn't relevant to the question, by may be helpful to others regarding the manual adjustments that may be needed if the state taxes foreign income.  

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