You cannot take a foreign tax credit on income that you have excluded by the foreign earned income exclusion as that would be double dipping. So you only need to complete this if you are using the foreign earned income exclusion.
So you must allocate some of your foreign tax credit to the foreign earned income and that amount will be disallowed.
For example, if your total foreign exclusion and foreign housing exclusion is $90,000 and your total foreign income is $200,00, the amount of foreign tax credit that you will not be able to use on your return is $90,000/$200,00.= 0.45.
If your foreign taxes were $50,000 , the Form 1116 will calculate that the reduction for foreign taxes is $50,000 * 0.45= $22,500. So the amount of foreign tax credit you can use is
$50,000-$22,500=$27,500.
This is calculated on lines 9-14 on Form 1116.
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