Know The Best Informative Facts About Foreign Housing Exclusion

Foreign Housing Exclusion

Foreign Housing Exclusion And The Foreign Earned Income Exclusion

The foreign housing exclusion complements the foreign earned income exclusion that is reported on the Form 2555 and can increase your available exclusion amount.

This is an additional exclusion for your housing costs if your tax home is in a foreign country and you qualify for the foreign earned income exclusion.

The foreign housing exclusion applies only to amounts considered paid for with employer-provided amounts, which includes any amounts paid to you or paid or incurred on your behalf by your employer that are taxable foreign earned income to you for the year (without regard to the foreign earned income exclusion).

Employer-provided amounts does not mean that the employer must acquire or pay for the housing. Rather, as long as the housing was paid from your earned income (i.e. you paid from your received wages), this will be considered employer-provided amounts.

The foreign housing deduction applies only to amounts paid for with self-employment earnings.

Your foreign housing amount is the total of your housing expenses for the year minus the base housing amount. The computation of the base housing amount (line 32 of Form 2555) is tied to the maximum foreign earned income exclusion. The amount is 16% of the maximum exclusion amount (computed on a daily basis), multiplied by the number of days in your qualifying period that fall within your tax year.

Thus, it is important to determine what your total qualified foreign housing amounts or housing expenses are for the tax year.

What Are Qualified Foreign Housing Expenses?

Housing expenses include your reasonable expenses actually paid or incurred for housing in a foreign country for you and your spouse and dependents (as long as they live with you in the foreign country). Consider only housing expenses for the part of the year that you qualify for the foreign earned income exclusion.

Housing expenses include:

  • Rent
  • Fair market value of housing provided in kind by your employer
  • Repairs
  • Utilities (other than telephone charges)
  • Real and personal property insurance
  • Non-deductible occupancy taxes
  • Non-refundable fees for securing a lease
  • Rental of furniture and accessories
  • Residential parking

Housing expenses do not include expenses that are lavish or extravagant under the circumstances, deductible mortgage interest and real estate/property taxes, principal payments on a mortgage, the cost of buying property, purchased furniture or accessories, the cost of domestic labor (maids, gardeners, etc.), cable/satellite television subscriptions and improvements and other expenses that increase the value or appreciably prolong the life of your property.

Our goal at Tax Samaritan is to provide the best counsel, advocacy and personal service for our clients. We are not only tax preparation and representation experts, but strive to become valued business partners. Tax Samaritan is committed to understanding our client’s unique needs; every expat tax situation is different and requires a personal approach in providing realistic and effective solutions.

If you would like a quote, please click on the button below for a free, no obligation Tax Preparation quote and/or free 30-minute consultation to discuss your situation regarding claiming the foreign earned income exclusion and foreign housing exclusion further:

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Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

All About Randall Brody
Randall is the Founder of Tax Samaritan, a boutique firm specializing in the preparation of taxes and the resolution of tax problems for Americans living abroad, as well as the other unique tax issues that apply to taxpayers. Here, they help taxpayers save money on their tax returns.

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