Foreign Tax Credit

The foreign tax credit is available to individuals who paid taxes to a foreign country or United States possession. The taxpayer has the choice of taking deduction on Schedule A or a credit. Generally speaking, if the foreign tax rate is higher than the U. S. rate, it is preferable to take a deduction.

You cannot take a credit or deduction for foreign income taxes paid on income that is excluded from U. S. tax under the:

• Foreign earned income exclusion
• Foreign housing exclusion
• Income from Puerto Rico exempt from U. S. tax
• Possession exclusion
• Extraterritorial income exclusion.

The amount of the credit is determined by completing Form 1116.