Foreign tax credit?

[ZiziPB]

So 2019 will be my first full FIRE year and the first full year I lived entirely abroad.  Trying to make some year end tax moves (like deciding on the Roth conversion amount for 2019).

Assuming I have $15K of dividends/capital gains, etc. and $30K Roth conversion and no other income of any kind:
- I will pay 19% tax to my country of residence on the $15K and no tax is due on the Roth conversion
- my US tax will be 0 on the $15K and whatever it amounts to on the Roth conversion amount.

The question is can I take a foreign tax credit for the amount paid in my country of residence even though no capital gain tax is due in the US on that income?  Last year, my tax situation was quite different due to the fact that I still worked part of the year.  So I ended up paying US capital gains taxes that I then offset against my foreign tax liability.  But this year I'm hoping to do it in reverse.

Thoughts?

[MustacheAndaHalf]

EDIT: to remove the part where I mixed up the two kinds of foreign tax deduction.  Follow terran's correction, below.

If you move permanently out of a state, you don't owe state tax after you move.  But there's several factors in proving that - in showing that you don't intend to return.  But that would save you the state tax.

[terran]

If you're talking about this foreign tax credit:
https://www.irs.gov/individuals/international-taxpayers/foreign-tax-credit

It only applies when you earn income in a foreign country, and pay foreign taxes on that income.  it has to be earned income (see above for the full list).

Are you sure about that? I haven't looked too closely at it, but that's the credit everyone who pays foreign taxes via an international index fund gets, so that's not earned income. Form 1116 definitely shows taxes on non-earned sources of income.

This is the one that requires foreign earned income: https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion (and doesn't care whether you paid foreign taxes, only that you were out of the US for long enough and the income was earned, not from investments).

[MustacheAndaHalf]

I agree with your correction.  I originally wasn't sure which foreign tax credit OP meant, which lead to my confusing mixture of links and references (the link I posted doesn't help when it, also, mentions "earned income").  I'll edit my original post to clear away the incorrect link and description.

If OP earns money in a foreign country, the first ~$100k doesn't require paying U.S. taxes.  I think there's a housing allowance, as well.

[reeshau]

The foreign tax credit only applies to the foreign earned income.  There is a separate worksheet to calculate it, and if you have paid more than the US liability, you will have a carryforward amount.  But you can't apply it to US-earned income.

Re: @MustacheAndaHalf 's comment, you can choose the foreign income exclusion (as he roughly described) OR the foreign tax credit, but not both.  Generally, the latter is better in high-tax jurisdictions, but given your low numbers it might be just as easy--and the housing cost credit could be meaningful.