The foreign housing exclusion or deduction 💜is an allowance for taxpayers who live and work in a foreign country that excludes from income taxes any amounts that their employers allocate 🔴to them to cover their housing costs.

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 IRS Form 2555.

Understanding the Foreign Hous🍃🌞ing Exclusion or Deduction

To qualify for the foreign housing exclusion or deduction, taxpayers must meet the same time criteria as a bona fide resident or pass 澳洲幸运5官方开奖结果体彩网:physical presence tests.

The housing exclusion ap꧑plies only to amounts paid for with money provided by the employer, which can include any amounts paid to the individual or paid on their behalf by the employer that are considered taxable foreign earned income.

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

How to Calculate It

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 澳洲幸运5官方开奖结果体彩网:foreign earned income exclusion. The amount is 16%of the maximum exclusion amount, which is computed daily and multiplied by the number of days in the qualifying period that fall within the individual’s tax year.

Housing expenses include reasonable expenses paid for housing in a foreign country for the individual, spouse, and their 澳洲幸运5官方开奖结果体彩网:dependents, provided they lived abroad as well.

Qualifying expenses may also include payments intended to equalize taxes and education expenses for the 澳洲幸运5官方开奖结果体彩网:taxpayer's children or dependents.

Costs relating to the purchase of property or the employment 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 or Deduction Limits

The limit on housing expenses is generally 30 percent of the maxiಌmu🅰m foreign earned income but may vary depending on the location in which the housing expenses are incurred.

Also, foreign housing expenses may not exceed the individual’s total foreign 澳洲幸运5官方开奖结果体彩网: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 housi▨ng exclusion. 

The limit on housing expenses is computed using the worksheet on page 3 of the instructions for Form 2555.

The Bottom Line

The foreign housing exclusion or deduction is a very big deal for Americans living and working abroad. If their emp🍌loyer is paying for their housing, they can deduct most or all of those payments from their gross income when filing their U.S. taxes.