I was wondering if other people have seen this? I haven't noticed it before.
MFJ retired client has 125k income mostly divs. 83k qualified. 48k in Roth conversions. 57k sched-a deduction.
5k in foreign taxes that's only partially consumed by the return. Return has zero tax due.
I was expecting to have to recharacterize some of the Roth conversion but the sched-a deduction was larger than expected. 8283 forms only just got to me. So I had to rework the expected recharacterization and I noticed something strange.
If the client recharacterizes $8716 then the tax due is $472 dollars. Change that to $8715 and the tax due is $0. Obviously tax due was much bigger before the larger deduction.
Suddenly the FTC allowed jumps to always eat the expected tax and recharacterization isn't needed at all.
This looks to be triggered by line 7 of the capital gains worksheet going from 0 to 1. That matches the instructions to 1116 on the reason to apply adjustments to the foreign source capital gains (42k). 1116 line 1a doesn't get adjusted as per the instructions so I am guessing the tax s/w is using an exception (I do't quite see how that applies at this point).
What does get adjusted though is line 18 of 1116. It jumps from a value above line 17 to one below causing line 19 to jump from about .6 to 1.
I find this discontinuity very strange.