What condition must be met to use the foreign tax credit effectively?

To effectively use the foreign tax credit, it is essential that the taxpayer has not claimed the foreign earned income exclusion on the same income for which they are seeking the credit. The foreign tax credit provides a way for U.S. taxpayers to reduce their tax liability for foreign taxes paid on income that is also subject to U.S. tax. However, the U.S. tax code prevents taxpayers from using both the foreign earned income exclusion and the foreign tax credit on the same income, as this would effectively create a double benefit for the same tax situation.

By ensuring that the foreign earned income exclusion has not been applied to the same income, the taxpayer can claim the foreign tax credit on applicable foreign taxes paid on other income, thus maximizing their potential tax benefits. In contrast, any of the other conditions do not fully address the fundamental requirement for the foreign tax credit to be used effectively.