@kvinci , agreeing with the answers from my colleague @rjs and having read through the whole thread
(a) the situation as I see it is -- two US persons ( citizen/GreenCard/Resident for Tax purposes ), having a tax home abroad, meeting the Physical Presence Test, each having foreign earned income and filing MFJ
(b) thus you will have two form 2555 ( as mentioned by @rjs ), one for each spouse, and thus excluding maximum allowed for each spouse.
(c) Any unexcluded income i.e. amounts above the max , can be aggregated and eligible for Foreign Tax Credit on form 1116 -- general category. I don't think there is any prohibition to not aggregate and instead file two separate form 1116 -- i.e. one for each spouse with un-excluded wages/self-employment income. -- if that makes it simpler for record keeping. Note here TurboTax may ask for total foreign source income and excluded income to be able to compute foreign income & tax thereon for Foreign Tax Credit -- this is for each spouse and not joint amounts. There should not be any adjustments for this general category. However, there are inclusions on form 2555 for any assistance/ employer paid amounts for housing, cola etc.
(d) if you have any passive income that is taxed by both your tax-home country ( Italy ) and US, then that foreign tax may eligible for foreign tax credit -- form 1116 , passive category . In this area there may be adjustments for compliance with treaty conditions.
Is there more one of us can do for you ?
