The Foreign Tax Credit is one method U.S. expats can use to offset foreign taxes paid abroad dollar-for-dollar.
You’re eligible for foreign tax credit if you’re a U.S. citizen or resident who earns foreign income abroad and already paid income taxes to your country of residence.
To get your maximum credit amount you’ll divide your foreign-sourced taxable income amount by your total taxable income, then multiply that result by your US tax liability.
If you don't use the full tax credit amount you've allowed, your unused amount could be carried over to the next tax year or rolled back to the previous year.
You can claim the credit only for those foreign taxes levied on you from the US occupation or from a foreign country. Generally, only war benefits, income and excess gains qualify for the tax credit.
The IRS limits the foreign tax credit you can claim to the lesser of the amount of foreign taxes paid or the U.S. tax liability on the foreign income.