Foreign Housing Exclusion And Deduction
The foreign housing exclusion and deduction is an allowance for taxpayers who live and work in a foreign country to exclude any amount that their employer allocates to them to cover costs related to housing. The foreign housing deduction cannot be more than their foreign earned income less the total of their foreign earned income exclusion, plus their housing exclusion. Also, the housing exclusion applies only to amounts considered paid for with the amounts provided by the employer, which include any amounts paid to the individual or paid or incurred on their behalf by their employer that are considered taxable foreign earned income. The limit on housing expenses is generally 30 percent of the maximum foreign earned income exclusion, but it may vary depending upon the location in which you incur housing expenses. The limit on housing expenses varies depending upon the location in which you incur housing expenses. The limit on housing expenses is computed using the worksheet on page 3 of
WHAT IS THE Foreign Housing Exclusion And Deduction
The foreign housing exclusion and deduction is an allowance for taxpayers who live and work in a foreign country to exclude any amount that their employer allocates to them to cover costs related to housing. The exclusion applies regardless of whether the expenses are paid directly to the taxpayer or paid on their behalf. The foreign housing exclusion or deduction is computed in parts VI, VIII, and IX of Form 2555.
BREAKING DOWN Foreign Housing Exclusion And Deduction
To qualify for the foreign housing exclusion and deduction, taxpayers must meet the same time criteria as for the bona fide resident or physical-presence tests. Also, the housing exclusion applies only to amounts considered paid for with the amounts provided by the employer, which include any amounts paid to the individual or paid or incurred on their behalf by their employer that are considered taxable foreign earned income. The housing deduction applies only to amounts paid for with self-employment earnings.
The housing amount is the total of housing expenses for the year minus the base housing amount. The computation of the base housing amount is tied to the maximum foreign earned income exclusion. The amount is 16 percent of the maximum exclusion amount, which computed daily, multiplied by the number of days in the qualifying period that fall within the individual’s tax year.
Housing expenses include reasonable expenses actually paid or incurred for housing in a foreign country for the individual, their spouse and their dependents, provided they lived abroad as well. Qualifying expenses may also include payments intended to equalize taxes and education expenses for the taxpayer's children or dependents. Costs relating to the purchase of property or the employ of domestic servants do not qualify for the exclusion. Housing expenses do not include expenses deemed lavish or nonessential under the circumstances.
Foreign Housing Exclusion And Deduction Limits
The limit on housing expenses is generally 30 percent of the maximum foreign earned income exclusion, but it may vary depending upon the location in which you incur housing expenses. Also, foreign housing expenses may not exceed the individual’s total foreign foreign earned income for the taxable year. The foreign housing deduction cannot be more than their foreign earned income less the total of their foreign earned income exclusion, plus their housing exclusion. The limit on housing expenses varies depending upon the location in which you incur housing expenses. The limit on housing expenses is computed using the worksheet on page 3 of the instructions for Form 2555.
Related terms:
Bona Fide Foreign Resident
A Bona Fide Foreign Resident is a resident of a foreign country for an entire tax year, who the IRS deems eligible for the foreign earned income exclusion. read more
Capital Gains Tax
A capital gains tax is a levy on the profit that an investor gains from the sale of an investment such as stock shares. Here's how to calculate it. read more
Deduction
A deduction is an expense that a taxpayer can subtract from his or her gross income to reduce the total that is subject to income tax. read more
Dependent
A dependent is a person who entitles a taxpayer to claim dependent-related tax benefits that reduce the amount of tax that the taxpayer owes. read more
Earned Income
Earned income includes wages, salaries, bonuses, commissions, tips, and net earnings from self-employment. read more
Foreign Earned Income Exclusion
The foreign earned income exclusion excludes income earned and taxed in a foreign country from the U.S taxable income of American expats. read more
Physical Presence Test
The physical presence test allows taxpayers to claim the foreign earned income exclusion if they have spent enough time abroad in a 12-month period. read more
Tax-Deductible Interest
Tax-deductible interest is a borrowing expense that a taxpayer can claim on a federal or state tax return to reduce taxable income. read more
Tax Credit
A tax credit is an amount of money that people are permitted to subtract, dollar for dollar, from the income taxes that they owe. read more