The depreciation helps postpone the tax on the gain from the rental of foreign property until it is sold out so essentially it is a tax that is postponed for later. On the other hand, being applied as a deduction now reduces the gain significantly and the tax credit is always less than the taxes paid abroad. I do not think the tax credit can be carried over for more than ten years so it can not be used to offset the gain from selling the real estate in ie 30 years. Furthermore, the same thing happens every year so the foreign tax credit can never be claimed. If this is the case it is not reasonable to consider depreciation a "definitely related" expense for 1116
