I am considering relocating to a foreign country with a tax treaty with the US which in theory prevents being double taxed but am having a hard time understanding how this works.
Background...I am retired, receiving social security and annuity payments; the annuity was purchased (invested in?) with money from my 401k so in the US both the annuity and SSA are taxable income. I also have dividends and gains on non-retirement money (taxed when I earned the principal, but earning/gains are subject to tax. All of my income is generated in the US and is passive income (at least as I understand it).
As I understand it, if I get residency in a foreign country and live there for 183 days or more, that country expects me to pay taxes to them. The US will also expect me to pay taxes. Do I do the foreign filing first, and if so, does the amount I paid to the foreign country reduce my US income on a dollar-for-dollar basis? Is there a maximum amount of the credit that can reduce my taxes due to the US?
