foreign Housing cost Exclusion

IRS provides instructions to its auditors concerning foreign housing cost exclusion

U.S. citizens and resident aliens are taxed on their worldwide income. However, U.S. citizens or residents who work and live abroad may qualify to exclude some or all of the amounts paid for their foreign housing costs. The foreign housing exclusion applies only to amounts that are considered paid for with employer-provided amounts for services performed in a foreign country. The IRS’s large business and international division has provided guidance to its auditors who examine taxpayers who take the foreign housing cost exclusion, including examples involving taxpayers who only qualify for the exclusion for portion of the tax year.

Basic Housing Cost Exclusion Guidelines

The housing cost amount (which is the amount of housing expenses that can be excluded from gross income) equals the amount by which the housing expenses, up to the limit described below, exceed the base housing amount. ( Code Sec. 911(c)(1) ) The limit on housing expenses is 30% (subject to adjustment as described below) of the maximum foreign earned income exclusion (FEIE; $80,000 adjusted for inflation), computed on a daily basis for the calendar year in which the tax year begins ( Code Sec. 911(c)(2)(A)(i) ), multiplied by the number of qualifying days in the tax year. ( Code Sec. 911(c)(2)(A)(ii) ) The base housing cost amount is 16% (computed on a daily basis) of the maximum FEIE for the calendar year in which the tax year begins ( Code Sec. 911(c)(1)(B)(i) ), multiplied by the number of qualifying days in the tax year. ( Code Sec. 911(c)(1)(B)(ii) ) (For 2014, the maximum FEIE is $99,200 (indexed annually for inflation) per taxpayer). Furthermore, excludable housing expenses include only reasonable expenses that were actually incurred for housing in a foreign country.

Housing Cost Exclusion Assistance

Freeman Tax Law has decades of experience helping people deal with offshore tax reporting and compliance.  Please contact us if you would like to schedule a free, totally confidential consultation to discuss your tax situation.