You can only deduct foreign taxes to the extent that you paid US tax on foreign income. For instance, if you earned $10,000 in foreign income and your US tax on the income is $1,500, you can't deduct $2,000 of foreign taxes paid on your tax return. The purpose of the credit is to allow you to avoid being double taxed on the same income. So, your foreign tax credits represent taxes paid on foreign income that has not yet been taxed domestically. Consequently, you are not losing a tax credit or deduction when you have foreign tax credit carryovers, you are just not able to use it yet to avoid double taxation.
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