Part I

To calculate the maximum foreign tax credit that taxpayers can claim, compare their foreign income taxed by the U.S. with their total income taxed by the U.S.

To complete Part I of Form 1116 for U.S. citizens who are Puerto Rican residents and received Puerto Rico source income:

• Enter the name of the foreign country, Puerto Rico, on line A, B, or C. Use that column to report taxpayers' Puerto Rico source income that is taxable to the U.S.
• Record the amount of gross Puerto Rico source income in Part I, line 1a. Gross income does not include exempt income under IRC 933 and IRC 912.

A U.S. government employee reports wages on Form 1116, line 1. Do not include the Cost Of Living Adjustments (COLA) or exempt income.

Note: It is important to correctly separate the foreign income entered on Form 1116 from the total income on Form 1040.