What Is the Foreign Tax Credit?

If you paid taxes to a foreign government, the Foreign Tax Credit lets you reduce your U.S. tax bill by the amount paid abroad — preventing you from being taxed twice on the same income. It applies to income taxes paid to foreign countries, not sales or property taxes. You can take it as a credit (usually better) or a deduction. The credit is claimed on Form 1116. U.S. citizens living abroad often use both this credit and the Foreign Earned Income Exclusion.