Publication 54 - Tax Guide For U.s. Citizens And Resident Aliens Abroad - 2006 Page 21
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44No double benefit. You cannot in-
your behalf by your employer that are taxable
amount you can deduct is subject to the limit
!
clude in housing expenses the value of
foreign earned income (without regard to the
described later.
meals or lodging that you exclude from
foreign earned income exclusion) to you for the
CAUTION
Self-employed — no employer-provided
gross income (see Exclusion of Meals and
year. Employer-provided amounts include:
amounts. If none of your housing amount is
Lodging, earlier) or that you deduct as moving
•
Your salary,
considered paid for with employer-provided
expenses.
•
amounts, such as when all of your income is
Any reimbursement for housing expenses,
Limit on housing expenses. The amount
from self-employment, you can deduct your
•
Amounts your employer pays to a third
of qualified housing expenses eligible for the
housing amount, subject to the limit described
party on your behalf,
housing exclusion and housing deduction is lim-
later.
•
ited. The limit is generally 30% of the maximum
The fair rental value of company-owned
Take the deduction by including it in the total
foreign earned income exclusion (computed on
housing furnished to you unless that value
on line 36 of Form 1040. On the dotted line next
a daily basis), multiplied by the number of days
is excluded under the rules explained ear-
to line 36, enter the amount and write “Form
in your qualifying period that fall within your tax
lier at Exclusion of Meals and Lodging,
2555.”
year. For 2006, this is generally $67.73 per day
•
Amounts paid to you by your employer as
($24,720 per year). However, the limit will vary
Self-employed and employer-provided
part of a tax equalization plan, and
depending upon the location of your foreign tax
amounts. If you are both an employee and a
•
home.
self-employed individual during the year, you
Amounts paid to you or a third party by
A qualified individual incurring housing ex-
your employer for the education of your
can deduct part of your housing amount and
penses in a high-cost locality during 2006 can
dependents.
exclude part of it. To find the part that you can
use housing expenses that total more than the
exclude, multiply your housing amount by the
standard limit on housing expenses ($24,720) to
employer-provided amounts (discussed earlier)
Choosing the exclusion. You can choose
determine the housing amount. An individual
and then divide the result by your foreign earned
the housing exclusion by completing the appro-
who does not incur housing expenses in a
income. This is the amount you can use to figure
priate parts of Form 2555. You cannot use Form
high-cost locality is limited to maximum housing
your foreign housing exclusion. You can deduct
2555-EZ to claim the housing exclusion. Other-
expenses of $67.73 per day ($24,720 per year).
the balance of the housing amount, subject to
wise, the rules about choosing the exclusion
the limit described later.
The IRS expects to issue guidance in
under Foreign Earned Income Exclusion also
!
early 2007 listing the housing expense
apply to the foreign housing exclusion.
Example. Your housing amount for the year
limits for high-cost localities. At the
CAUTION
Your housing exclusion is the lesser of:
is $12,000. During the year, your total foreign
time this publication went to print, the limits for
•
That part of your housing amount paid for
earned income is $80,000, of which half
2006 were not yet available. To find out if this
with employer-provided amounts, or
($40,000) is from self-employment and half is
guidance has been issued and for more details,
•
from your services as an employee. Half of your
go to , click on More Forms and
Your foreign earned income.
housing amount ($12,000 ÷ 2) is considered
Publications, and then on What’s Hot in forms
If you choose the housing exclusion, you must
provided by your employer. You can exclude
and publications.
figure it before figuring your foreign earned in-
$6,000 as a housing exclusion. You can deduct
come exclusion. You cannot claim less than the
Second foreign household. Ordinarily, if
the remaining $6,000 as a housing deduction
full amount of the housing exclusion to which
you maintain two foreign households, your rea-
subject to the following limit.
you are entitled.
sonable foreign housing expenses include only
costs for the household that bears the closer
Figuring tax on income not excluded. If
Limit
relationship (not necessarily geographic) to your
you claim the housing exclusion, the foreign
tax home. However, if you maintain a second,
earned income exclusion (discussed earlier), or
Your housing deduction cannot be more than
separate household outside the United States
both, you must figure the tax on your nonex-
your foreign earned income minus the total of:
for your spouse or dependents because living
cluded income using the tax rates that would
•
conditions near your tax home are dangerous,
Your foreign earned income exclusion,
have applied had you not claimed the exclu-
unhealthful, or otherwise adverse, include the
plus
sions. See the instructions for Form 1040 and
expenses for the second household in your rea-
•
complete the Foreign Earned Income Tax Work-
Your housing exclusion.
sonable foreign housing expenses. You cannot
sheet to figure the amount of tax to enter on
include expenses for more than one second
Form 1040, line 44. If you must attach Form
foreign household at the same time.
Carryover. You can carry over to the next
6251 to your return, use the Foreign Earned
If you maintain two households and you ex-
year any part of your housing deduction that is
Income Tax Worksheet provided in the instruc-
clude the value of one because it is provided by
not allowed because of the limit. You are al-
tions for Form 6251.
your employer, you can still include the ex-
lowed to carry over your excess housing deduc-
penses for the second household in figuring a
Foreign tax credit or deduction. Once you
tion to the next year only. If you cannot deduct it
foreign housing exclusion or deduction.
choose to exclude foreign housing amounts, you
in the next year, you cannot carry it over to any
Adverse living conditions include:
cannot take a foreign tax credit or deduction for
other year. You deduct the carryover in figuring
•
taxes on income you can exclude. If you do take
adjusted gross income. The amount of carryover
A state of warfare or civil insurrection in
a credit or deduction for any of those taxes, your
you can deduct is limited to your foreign earned
the general area of your tax home, and
choice to exclude housing amounts may be con-
income for the year of the carryover minus the
•
Conditions under which it is not feasible to
sidered revoked. See Publication 514 for more
total of your foreign earned income exclusion,
provide family housing (for example, if you
information.
housing exclusion, and housing deduction for
must live on a construction site or drilling
that year.
rig).
Earned income credit. If you claim the for-
eign housing exclusion, you will not qualify for
Married Couples
the earned income credit for the year.
Foreign Housing Exclusion
If both you and your spouse qualify for the for-
Foreign Housing Deduction
eign housing exclusion or the foreign housing
If you do not have self-employment income, all
deduction, how you figure the benefits depends
of your earnings are employer-provided
If you do not have self-employment income, you
on whether you maintain separate households.
amounts and your entire housing amount is con-
cannot take a foreign housing deduction.
sidered paid for with those employer-provided
How you figure your housing deduction de-
amounts. This means that you can exclude (up
p e n d s
o n
w h e t h e r
y o u
h a v e
o n l y
Separate Households
to the limits) your entire housing amount.
s e l f - e m p l o y m e n t
i n c o m e
o r
b o t h
Employer-provided amounts. These include
s e l f - e m p l o y m e n t
i n c o m e
a n d
e m -
If you and your spouse live apart and maintain
any amounts paid to you or paid or incurred on
ployer-provided income. In either case, the
separate households, you both may be able to
Chapter 4 Foreign Earned Income and Housing: Exclusion – Deduction
Page 21
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