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Choice Applies to All Qualified Foreign Taxes: Foreign Tax Credits (2025 IRS Guide)

This guide covers “Choice Applies to All Qualified Foreign Taxes” within foreign tax credits. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 514 (2025), Foreign Tax Credit for Individuals, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

You can choose whether to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction. You can change your choice for each year’s taxes.

To choose the foreign tax credit, in most cases, you must complete Form 1116 and attach it to your U.S. tax return. However, you may qualify for the exception that allows you to claim the foreign tax credit without using Form 1116. See How To Figure the Credit, later. To claim the taxes as an itemized deduction, use Schedule A (Form 1040).

Choice Applies to All Qualified Foreign Taxes

As a general rule, you must choose each year to take either a credit or a deduction for all qualified foreign taxes paid or accrued in that year.

If you choose to take a credit for any qualified foreign taxes in a year, you must take the credit for all qualified foreign taxes paid or accrued in that year. You cannot deduct any of them. Conversely, if you choose to deduct qualified foreign taxes, you must deduct all of them. You cannot take a credit for any of them.

See What Foreign Taxes Qualify for the Credit, later, for the meaning of “qualified foreign taxes.”

There are exceptions to this general rule, which are described next.

Exception for taxes that relate to a prior year in which you deducted foreign income taxes.

If you are an accrual-basis taxpayer (or you elected to claim your foreign tax credit on an accrual basis, see Credit for Taxes Paid or Accrued, later) that has chosen to claim a credit for foreign taxes this year, and you paid additional qualified foreign tax this year that relates to a prior year in which you chose to deduct foreign taxes, then you may claim a deduction for the additional tax paid (you may not claim a credit for such taxes). See Regulations section 1.901-1(c)(3).

Exceptions for foreign taxes not allowed as a credit.

Even if you claim a credit for other foreign taxes, you can deduct any foreign tax that is not allowed as a credit if you did any of the following.

  • You paid the tax to a country for which a credit is not allowed because it provides support for acts of international terrorism, or because the United States does not have or does not conduct diplomatic relations with it or recognize its government and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act.

  • You paid withholding tax on dividends from foreign corporations whose stock you did not hold for the required period of time.

  • You paid withholding tax on income or gain (other than dividends) from property you did not hold for the required period of time.

  • You paid withholding tax on income or gain to the extent you had to make related payments on positions in substantially similar or related property.

  • You participated in or cooperated with an international boycott.

  • You paid taxes in connection with the purchase or sale of oil or gas.

  • You paid or accrued taxes on income or gain in connection with a covered asset acquisition. Covered asset acquisitions include certain acquisitions that result in a stepped-up basis for U.S. tax purposes. For more information, see Internal Revenue Code section 901(m) and the regulations under that section, including Treasury Decision 9895, 2020-15 I.R.B. 565, available at IRS.gov/irb/2020-15_IRB#TD-9895.

For more information on these items, see Taxes for Which You Can Only Take an Itemized Deduction, later, under Foreign Taxes for Which You Cannot Take a Credit.

Foreign taxes that are not income taxes.

In most cases, only foreign income taxes qualify for the foreign tax credit. Other taxes, such as foreign real and personal property taxes, do not qualify. But you may be able to deduct these other taxes even if you claim the foreign tax credit for foreign income taxes if they are expenses incurred in a trade or business or in the production of income.

Caution:

Final foreign tax credit regulations issued on January 4, 2022, revised the creditability requirements under Regulations sections 1.901-2 and 1.903-1, applicable for foreign taxes paid or accrued in tax years beginning on or after December 28, 2021. A Notice was subsequently released on July 21, 2023, allowing taxpayers to apply prior rules in place of certain rules provided in the regulations. The rules described in this Notice were modified in part by a Notice released on December 11, 2023, to address their application to partnerships and their partners and to extend the relief period until further notice. For more information, see Treasury Decision 9959, 2022-03 I.R.B. 328, available at IRS.gov/irb/2022-03_IRB#TD-9959; Notice 2023-55, 2023-32 I.R.B. 427, available at IRS.gov/irb/2023-32_IRB#NOT-2023-55; and Notice 2023-80, 2023-52 I.R.B. 1583, available at IRS.gov/irb/2023-52_IRB#NOT-2023-80.

Carrybacks and carryovers.

There is a limit on the credit you can claim in a tax year. If your qualified foreign taxes exceed the credit limit, you may be able to carry over or carry back the excess to another tax year. If you deduct qualified foreign taxes in a tax year, you cannot take a credit for qualified foreign taxes that are carried back or carried over to that tax year from another tax year. That is because you cannot take both a deduction and a credit for qualified foreign taxes in the same tax year.

For more information on the limit, see How To Figure the Credit, later. For more information on carrybacks and carryovers, see Carryback and Carryover, later.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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