If you paid or accrued foreign taxes to a foreign country or U.S. possession and are subject to U.S. tax on the same income, you may be able to take either a credit or an itemized deduction for those taxes.
Qualifying Foreign Taxes
You can claim a credit only for foreign taxes that are imposed on you by a foreign country or U.S. possession. Generally, only income, war profits and excess profits taxes qualify for the credit.
Taken as a deduction, foreign income taxes reduce your U.S. taxable income. Deduct foreign taxes on Schedule A (Form 1040), Itemized Deductions.
Taken as a credit, foreign income taxes reduce your U.S. tax liability. In most cases, it is to your advantage to take foreign income taxes as a tax credit.
If you elect to exclude either foreign earned income or foreign housing costs under IRC §911, you cannot take a foreign tax credit for taxes on income you exclude. If you do take the credit, one or both of the elections may be considered revoked.
