How it works
Form 1116 computes the foreign tax credit by category of income (general, passive, and others), limiting the credit to the U.S. tax attributable to foreign-source income in each category. Unused credits carry back one year and forward ten. Taxpayers with 300 dollars or less of creditable foreign tax (600 dollars joint), all on passive income reported on payee statements, can claim the credit without the form.
Why it matters
The credit is the only relief for foreign tax on investment income and the better choice for expats in high-tax countries; the choice between credit and exclusion should be made every year with both computed.
Related: foreign tax credit, Form 2555.
