The foreign housing exclusion is an often overlooked tax benefit for Americans working abroad. Many expatriates may be eligible for this exclusion, which allows them to deduct housing expenses incurred while living and working in a foreign country. The amount that can be excluded varies depending on the location and can result in significant tax savings for those who qualify.
**The amount of foreign housing that can be excluded is generally limited to 30% of the maximum foreign earned income exclusion, which is $108,700 for the 2021 tax year.**
What is considered foreign housing?
Foreign housing includes expenses such as rent, utilities, and other housing-related costs incurred while living in a foreign country for work purposes.
Who is eligible for the foreign housing exclusion?
U.S. citizens or residents who meet the IRS criteria for the foreign earned income exclusion are generally eligible for the foreign housing exclusion.
Do I need to itemize my deductions to claim the foreign housing exclusion?
No, the foreign housing exclusion is claimed on Form 2555 along with the foreign earned income exclusion and does not require itemizing deductions.
Are there any restrictions on the type of housing that can be excluded?
The housing must be considered reasonable for the individual’s needs and not extravagant in order to qualify for the exclusion.
Can I use the foreign housing exclusion if I receive a housing allowance from my employer?
Yes, housing expenses covered by a housing allowance from your employer can still be eligible for the foreign housing exclusion.
Is there a cap on the amount of foreign housing expenses that can be excluded?
Yes, the exclusion is limited to 30% of the maximum foreign earned income exclusion amount determined by the IRS.
Can I claim the foreign housing exclusion if I own a home in the foreign country?
Yes, homeowners can still claim the foreign housing exclusion for expenses such as property taxes, mortgage interest, and utilities.
Can I claim the foreign housing exclusion if I live in company-provided housing?
Yes, as long as the housing expenses can be documented and meet the IRS criteria for the exclusion.
Do I need to keep receipts for my foreign housing expenses?
It is recommended to keep thorough records of all housing-related expenses to support your claim for the foreign housing exclusion.
Does the foreign housing exclusion apply to temporary assignments abroad?
Yes, the foreign housing exclusion can be used for temporary assignments as long as the individual meets the IRS criteria for the exclusion.
Can I claim the foreign housing exclusion if I work remotely for a U.S. company while living abroad?
No, the foreign housing exclusion is only available to individuals who are physically present in a foreign country for work purposes.
Are there any exceptions to the 30% cap on the foreign housing exclusion?
In certain high-cost locations, the IRS may allow a higher percentage of the foreign earned income exclusion to be used for the foreign housing exclusion.