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.