I have a question about US taxation. I am US citizen that relocated to India in May 2010. Let's say I have $X in US income for 2010 and $Y in foreign income. Do I report $(X Y) on line-7 of 1040? And then take out $Y in Foreign income exclusion (FEI). Also, let us say $Y is above the limit for FEI then for the differential amount of ($Y - limit) I have to claim Foreign Tax credit.

Is this correct?

You report ALL income that are wages on Line 7, Form 1040.

The excluded income is then debited on Line 21 as a NEGATIVE number, based on your calculations from Form 2555.

After the exclusion limit is reached, you then factor in the Foreign Tax Credit (Form 1116) on the remaining amount of income that was NOT excluded.

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