Based on "General Category Income" checked on the Form 1116, while you cannot take the Foreign Earned Income Exclusion and Foreign Tax Credit on the same earnings, you can take both in the same year when your are earning a relatively high income, in a country with a lower tax rate than the U.S. You would apply for the FEIE to your income first and would use the FTC to reduce your tax liability on your income above the exclusion amount. As a result, the reduction in foreign taxes would be reported on Line 12, F1116 (Lacerte does calculate the reduction and report on the line).

However, if "f - Certain income re-sourced by treaty" would be checked. No reduction in foreign taxes would be reported on the Line 12. As a result, you would be taking a full reduction in foreign taxes in addition to FEIE. Why? Is this simply Lacerte's program error? or is there any IRS code or publication addressing about this? I was searching the code or publication, etc. in regards to this matter, but I can't find anything. Anyone knows about the reason?