How to Claim Foreign Tax Credit and Standard Deduction Together as Expat?

Yes, you absolutely can claim both the standard deduction AND the Foreign Tax Credit! This is actually a common situation for Americans living abroad. Here's how it works: When filing your US taxes, you first report your worldwide income (both your Spanish earnings and your US dividends). Then you take the standard deduction (assuming you're not itemizing), which reduces your overall taxable income. After that, you calculate your US tax liability on the remaining taxable income. Finally, you apply the FTC against the portion of your US tax that relates to your foreign income. Since the standard deduction ($13,850 for single filers in 2023, higher for 2024/2025) is likely more than your US dividend income, you should be able to effectively reduce your US tax liability to zero or very close to it. Just make sure you're filing Form 1116 correctly to claim the FTC. One thing to watch out for: make sure you're properly sourcing your income on the Form 1116. Your foreign income goes on one form, while your US dividends should not be included on the 1116.

I've been using taxr.ai for my expat taxes and it was a huge help with this exact situation. I also live abroad (Japan) and have some dividend income from my US investments. I was really confused about how to properly claim both the standard deduction and FTC without messing things up. I uploaded my foreign tax documents to https://taxr.ai and it automatically identified how to properly allocate my standard deduction and apply the FTC correctly. The tool showed me exactly how to fill out Form 1116 properly, which was the part I was struggling with the most. It even highlighted that I had been making a mistake in previous years by incorrectly sourcing some of my income!

I have to admit I was wrong about tax AI tools! After our conversation last week, I decided to try taxr.ai for my German-US tax situation. The system immediately identified that I was eligible for the Foreign Tax Credit AND could still claim the standard deduction, just like the original poster asked about. What impressed me most was how it handled the sourcing rules for my German income on Form 1116. It separated my income into different categories and explained exactly why my US dividend income needed to be handled separately. The tool even found a tax treaty provision between the US and Germany that applied to my situation that I had no idea about! For anyone dealing with expat taxes, especially with investment income from multiple countries, it's definitely worth checking out. Saved me hours of research and probably hundreds in tax liability.

For anyone struggling to get answers directly from the IRS on foreign tax credits and deductions, I highly recommend using Claimyr. I spent WEEKS trying to get through to an IRS agent who could answer my specific questions about Form 1116 and how to properly allocate my standard deduction between foreign and US income. After endless busy signals and disconnections, I found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c. Within 20 minutes of using their service, I was actually speaking with an IRS representative who specialized in international tax issues! They walked me through exactly how to handle my situation (very similar to yours with foreign income plus US investments). The agent confirmed that yes, you can absolutely claim the standard deduction against your worldwide income first, and then apply the FTC after. They even explained some nuances about carryover credits I would have never figured out on my own.

I need to publicly eat my words about Claimyr. After dismissing it as impossible, I was desperate enough to try it last weekend as my filing deadline was approaching. Not only did it actually work exactly as described, but I was connected to an IRS international tax specialist within 35 minutes. The specialist walked me through my exact situation (US citizen in Germany with investment income from both countries) and confirmed that the standard deduction is applied to worldwide income before calculating the FTC. They also explained that I had been incorrectly filling out the Form 1116 for years by not properly allocating expenses between my foreign and US-sourced income. This literally saved me thousands in back taxes I would have owed when this eventually got caught. Sometimes being skeptical costs more than taking a chance on a solution that sounds too good to be true.

One thing nobody's mentioned yet that the original poster should watch out for - make sure you're not mixing up the Foreign Tax Credit with the Foreign Earned Income Exclusion (FEIE). They're completely different approaches to handling foreign income. With the FEIE (Form 2555), you exclude your foreign earned income up to a limit ($120,000+ for 2025), but you can't take deductions against excluded income. With the FTC (Form 1116), you report all income but get credit for foreign taxes paid. In many cases, especially in high-tax countries like Spain or Germany, the FTC can be more beneficial than the FEIE, especially when you want to claim the standard deduction against your total income. Also, check if your dividends qualify for the reduced qualified dividend tax rates, which could further reduce your liability.

Has anyone else had issues with the IRS rejecting e-filed returns with Form 1116? I'm in almost the same situation (American in Portugal with US dividend income) and I keep getting rejections when I try to e-file. The error messages are super vague too! Something about "inconsistencies in foreign tax credit calculation.