To be eligible for the Foreign Tax Credit, you must be a U.S. citizen or resident alien or a U.S. nonresident alien who is a full-year resident of Puerto Rico.
You must have paid, accrued, or owe taxes on foreign income that is also subject to U.S. income tax. This foreign tax must be an income tax or a tax in lieu of an income tax that is imposed on you and is a legal and actual foreign tax liability.
Foreign taxes that don't qualify:
- Taxes that are refundable to you
- Taxes used to provide a subsidy to you or a relative
- Non-mandatory taxes that could have been avoided
- Taxes paid or accrued on income earned in countries designated as a State Sponsor of Terrorism or that the U.S. has severed ties or diplomatic relations
- Social security or Social Security taxes paid to countries with which the U.S. has an International Social Security (Totalization) agreement
- Taxes on foreign mineral income
- Taxes from international boycott operations
- A portion of taxes on combined foreign oil and gas income
- Taxes paid by U.S. persons controlling foreign corporations and partnerships who fail to file required information returns
