FAQs - Expat Housing Exclusion

1. What is the Foreign Housing Exclusion?

The Foreign Housing Exclusion (FHE) allows U.S. expats to reduce their taxable income by excluding certain qualified housing expenses incurred while living abroad. It is a companion benefit to the Foreign Earned Income Exclusion (FEIE). Our article What is the Foreign Housing Exclusion? provides a more detailed description.

2. Who is eligible for the Foreign Housing Exclusion?

To qualify, you must:

• Have foreign earned income.
• Pass either the Bona Fide Residence Test (be a resident of a foreign country for a full tax year) or the Physical Presence Test (spend at least 330 full days in a foreign country within a 12-month period). (Read more about the Bona Fide Residence Test vs. Physical Presence Test.)
• Elect to claim the FEIE using IRS form 2555.

3. What types of expenses can be excluded?

Examples of eligible expenses include:

• Rent
• Utilities (excluding telephone costs)
• Property insurance
• Repairs and maintenance
• Furniture rental
• Parking fees
• Certain costs associated with owning a home, such as mortgage interest and property taxes

Ineligible expenses include the purchase price of a home, mortgage principal payments, luxury upgrades, and phone/internet bills.

4. Can I claim the exclusion if I own my home abroad?

Yes, homeowners can include eligible expenses like mortgage interest, property insurance, and maintenance costs. However, the purchase cost of the home and mortgage principal payments are not eligible.

5. Is there a limit to the amount I can exclude?

Yes, the exclusion is limited to:

• Base Housing Amount: This is 16% of the FEIE limit. For the 2023 tax year, the FEIE limit is $120,000, so the base housing amount should be $19,200 (16% of $120,000). For the 2024 tax year, the FEIE limit increases to $126,500, making the base housing amount $20,240 (16% of $126,500).
• Maximum Housing Cost: This varies based on location, with higher limits for expensive cities.

6. How do I claim the Foreign Housing Exclusion?

File IRS form 2555 along with your tax return. This form is titled "Foreign Earned Income" and is used to claim exclusions and deductions related to income earned abroad. Ensure you have detailed records of your housing expenses to support your claim.

7. Can I claim the exclusion if my employer provides a housing allowance?

Yes, but the amount of the housing allowance must be subtracted from your total eligible housing expenses before calculating the exclusion.

8. Can self-employed individuals claim the Foreign Housing Exclusion?

Yes, self-employed expats can claim the exclusion as long as they meet the eligibility requirements. Alternatively, they may deduct qualified housing expenses instead of excluding them.

9. What happens if I don’t qualify for the FEIE?

If you don’t qualify for the FEIE (e.g., you fail the residency or physical presence tests), you cannot claim the Foreign Housing Exclusion. However, self-employed individuals might be able to deduct housing expenses as a business expense.

10. Should I consult a tax advisor to claim the Foreign Housing Exclusion?

Yes. Navigating the Foreign Housing Exclusion, especially in conjunction with other tax benefits like the FEIE or Foreign Tax Credit, can be complex. An experienced expat tax professional can help maximize your benefits and ensure compliance with IRS regulations.