Form 1116's instructions have a probable error. They cause computation of the foreign tax credit using deductions that are now limited to $10,000.00, but instead based upon the original, unlimited numbers. I do not believe this is IRS's (or the law's) intent.
In my case, this did not affect the final tax amount. However, Turbotax refused to e-file based upon an "error" during review. The program stated that the amount on Form 1116 could not be greater than my actual (limited) deduction. My work-around was to claim those lower local taxes that caused the deduction to equal $10,000.00 without an imposed limit.
