Overview

A foreign housing exclusion is available for certain overseas housing expenses that exceed a “base housing amount”.  Generally, the allowable housing expenses are the reasonable expenses (such as rent, utilities other than telephone charges, and real and personal property insurance) paid or incurred during the year by the taxpayer, or on his behalf, for foreign housing.  The housing costs include those of the spouse and dependents if they lived with the taxpayer.  Allowable housing expenses do not include the cost of home purchase or other capital items, wages of domestic servants, or deductible interest and taxes.   Some taxpayers mistakenly believe if they use only a portion of the employer-provided housing amount, they can still deduct the full amount permitted under the foreign housing exclusion rules.  This is not so.  To be eligible for exclusion, the taxpayer must actually incur these amounts in rental payments (for example, paid to the landlord on his behalf by the employer or paid by the taxpayer to the landlord from his employer-provided housing amount).

Calculation Rules

To be eligible for exclusion from tax, the allowable housing expenses must exceed a so-called “base housing amount”.  The base housing amount is 16 % of the maximum Foreign Earned Income Exclusion amount (FEIE). For 2013, this “base housing amount” is US$15,616 (computed as follows: 16% x US$97,600 – the 2013 FEIE amount). Reasonable foreign housing expenses in excess of the ”base housing amount” are eligible for the exclusion, but such Read More