How does the foreign tax deduction impact a taxpayer's adjusted gross income (AGI)?

The foreign tax deduction is designed to prevent double taxation by allowing U.S. taxpayers to deduct foreign taxes paid on income earned abroad from their taxable income. When a taxpayer claims the foreign tax deduction, it effectively reduces the amount of income that is subject to federal income tax.

By lowering the taxable income, the deduction subsequently impacts the adjusted gross income (AGI) as well. Since AGI is calculated before taking into account specific deductions, the foreign tax deduction will reduce the taxable income after AGI has been established. This ultimately means that taxpayers will have a lower AGI reported on their tax return, which can also affect their eligibility for various tax credits and deductions that are phased out at higher AGI levels.

In this context, claiming the foreign tax deduction directly contributes to lowering the AGI, making it beneficial for taxpayers who qualify for it.