What qualifies for the Foreign Tax Credit? - Community

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What qualifies for the Foreign Tax Credit?

For starters, you must be a U.S. citizen, U.S. resident alien, or a U.S. nonresident alien who is a full-year resident of Puerto Rico.

You must also have paid (or owe) taxes on foreign income that is also subject to U.S. income tax. The foreign tax must be:

  • An income tax (or a tax in lieu of an income tax)
  • A legal and actual foreign tax liability
  • Imposed on you

You can't take a credit for foreign taxes that are refundable to you, that are used to provide a subsidy to you or a relative, or that could have been avoided (in other words, non-mandatory taxes).

You also can't take a credit for taxes paid or accrued on income earned in countries with which the U.S. has severed ties or diplomatic relations or have been designated as a State Sponsor of Terrorism.

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