Foreign Tax Credit vs Deduction 2027 Calculator
Compare Foreign Tax Credit vs Foreign Tax Deduction 2027 — credit reduces tax dollar-for-dollar (better). Deduction reduces taxable income only.
Foreign Tax Credit (Form 1116)
Dollar-for-dollar reduction of US tax. If you paid $4,500 foreign tax, US tax drops $4,500. Cannot exceed US tax on same income.
Foreign Tax Deduction (Schedule A)
Reduces taxable income only. Saves tax at marginal rate. $4,500 deduction in 32% bracket = $1,440 saved. Always less than credit.
When Credit Limited
Cannot exceed US tax LIABILITY on foreign income. Excess credit can carry back 1 yr OR forward 10 yrs. Use eventually.
Easy Election ($300/$600)
If total foreign tax ≤ $300 single / $600 joint AND all passive (dividends), can claim credit on Form 1040 directly without 1116. Saves complexity.
Source: irs.gov Foreign Tax Credit Form 1116, Publication 514. Last updated: May 2026.
Frequently Asked Questions
Multiple countries?
Group by 'category of income' on Form 1116 (general, passive, etc.). Separate calculation per category.
Foreign mutual fund?
PFIC rules apply if foreign mutual fund. Complex extra forms. Generally avoid foreign mutual funds — use ETFs.
Living abroad?
Foreign Earned Income Exclusion (FEIE) + Foreign Tax Credit. Both available. Often combo: FEIE for wages + FTC for foreign tax on investment income.