Foreign Housing Exclusion or Foreign Housing Deduction

You may elect the Foreign Housing Exclusion or Foreign Housing Deduction in addition to the Foreign Earned Income Exclusion

Foreign Housing Exclusion vs. Foreign Housing Deduction

The housing exclusion applies if you are employed by someone else and your employer pays for your housing (on your behalf) and includes that amount in your foreign earned income – W2.  The housing deduction applies if you are self-employed.  It is possible to take both if you have an employer plus you have self-employment income.

Housing Amount

Your housing amount is the amount you can exclude or deduct from gross income if you have foreign earned income, meet the foreign tax home requirements and qualify under the residency test.  The housing amount is reasonable expenses paid or incurred for housing for you and your family (if they live with you) in a foreign country.

Expenses included  Rent or the fair value of rent if your employer provides housing, repairs, utilities (other than telephone), real and personal property insurance, household repairs, nondeductible occupancy taxes, rental of furniture and accessories, residential parking, nonrefundable fees for securing a lease, etc.  Also included are reasonable expenses related to a second foreign household for your spouse and dependents if they do not reside with you due to adverse conditions near your tax home.

Expenses not included  Telephone charges, pay television subscriptions, internet charges, deductible interest and taxes, the cost of buying property, domestic labor, purchased furniture, depreciation or amortization, improvements or other expenses that increase the value of the property.  It also does not include expenses that are lavish or extravagant under the circumstances.

The maximum amount of expenses for the Foreign Housing Exclusion or Deduction for most locations is $31,770 or $87.04 per day in 2019 (2017: $30,630 or $83.92 per day and 2018: $31,230 or $85.56 per day).