Publication 54 - Tax Guide For U.s. Citizens And Resident Aliens Abroad - 2006 Page 22
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44claim the foreign housing exclusion or the for-
Forms 2555 to claim these benefits. See the
Form 2555 and
eign housing deduction. You can both claim the
discussion earlier under Separate Households.
exclusion or the deduction if both of the following
Form 2555-EZ
conditions are met.
Illustrated Example
•
You and your spouse have different tax
Jim and Judy Adams are married and have two
If you are claiming the foreign earned income
homes that are not within reasonable com-
dependent children. They are both U.S. citizens
exclusion only, you can use Form 2555. In some
muting distance of each other.
and they file a joint U.S. income tax return. Each
circumstances, you can use Form 2555-EZ to
•
Neither spouse’s residence is within rea-
one has a tax home in a foreign country and
claim the foreign earned income exclusion. You
sonable commuting distance of the other
each meets the physical presence test for all of
must file one of these forms each year you are
spouse’s tax home.
2006. They both can exclude their foreign
claiming the exclusion.
earned income up to the limit. Their qualified
If you are claiming either the foreign housing
housing expenses are limited to 30% of the
Housing exclusion. Each spouse claiming a
exclusion or the foreign housing deduction, you
maximum foreign earned income exclusion.
housing exclusion must figure separately the
must use Form 2555. You cannot use Form
Jim is a petroleum engineer. For 2006, his
part of the housing amount that is attributable to
2555-EZ. Form 2555 shows how you qualify for
salary, which was entirely from foreign sources
employer-provided amounts, based on his or
the bona fide residence test or physical pres-
was $71,000. In addition, his employer provided
her separate foreign earned income.
ence test, how much of your earned income is
him an annual housing allowance of $18,000,
excluded, and how to figure the amount of your
which he used to maintain a rented apartment at
allowable housing exclusion or deduction.
One Household
his tax home in City A, Country X (which is not a
Do not submit Form 2555 or Form 2555-EZ
high-cost locality), for the period he was not
by itself.
If you and your spouse lived in the same foreign
working at remote drilling sites.
household and file a joint return, you must figure
At various times during the year, Jim worked
Form 2555-EZ
your housing amounts jointly. If you file separate
at remote oil drilling sites. While he worked at
returns, only one spouse can claim the housing
these remote sites, his employer provided him
Form 2555-EZ has fewer lines than Form 2555.
exclusion or deduction.
lodging and meals at nearby camps. Satisfac-
You can use this form if all seven of the following
In figuring your housing amount jointly, you
tory housing was not available on the open mar-
apply.
can combine your housing expenses and figure
ket near these drilling sites, and the lodging was
•
one base housing amount. Either spouse (but
You are a U.S. citizen or a resident alien.
provided in common areas that normally accom-
not both) can claim the housing exclusion or
•
modated 10 or more employees and were not
Your total foreign earned income for the
housing deduction. However, if you and your
available to the general public. The fair market
year is $82,400 or less.
spouse have different periods of residence or
value of the lodging he was provided in these
•
presence and the one with the shorter period of
You have earned wages/salaries in a for-
camps was $2,000, and the value of the meals
residence or presence claims the exclusion or
eign country.
was $1,000.
deduction, you can claim as housing expenses
•
You are filing a calendar year return that
After he made an adequate accounting, Jim
only the expenses for that shorter period.
covers a 12-month period.
was reimbursed by his employer for part of his
•
travel expenses and other employee business
Example. Tom and Jane live together and
You did not have any self-employment in-
expenses. Jim had $2,500 of unreimbursed em-
file a joint return. Tom was a bona fide resident
come for the year.
ployee business expenses for travel, meals, and
of and had his tax home in Ghana from August
•
You did not have any business or moving
lodging that were allocable to his foreign earned
17, 2006, through December 31, 2007. Jane
expenses for the year.
income.
was a bona fide resident of and had her tax
•
Because of adverse conditions in Country X,
home in Ghana from September 15, 2006,
You are not claiming the foreign housing
through December 31, 2007.
Judy and the children lived in City Y, Country Y
exclusion or deduction.
During 2006, Tom received $75,000 of for-
(which is not a high-cost locality), where she
eign earned income and Jane received $50,000
worked as an executive secretary with a U.S.
Form 2555
of foreign earned income. Tom paid $10,000 for
company. Her earnings from this job were
housing expenses, of which $7,500 was for ex-
$44,000. These earnings were subject to foreign
If you claim exclusion under the bona fide resi-
penses incurred from September 15 through the
income tax.
dence test, you should fill out Parts I, II, IV, and V
end of the year. Jane paid $3,000 for housing
The Adams family rented an apartment in
of Form 2555. In filling out Part II, be sure to give
expenses in 2006, all of which were incurred
Country Y for Judy and the children. They paid
your visa type and the period of your bona fide
during her period of residence in Ghana.
$1,000 a month rent, including utilities, or
residence. Frequently, these items are over-
Tom and Jane figure their housing amount
$12,000 for the year. The Adamses choose to
looked.
jointly. If Tom claims the housing exclusion, their
treat the expenses for the apartment as those for
housing expenses would be $13,000 and their
If you claim exclusion under the physical
a qualified second foreign household. They in-
base housing amount, using Tom’s period of
presence test, you should fill out Parts I, III, IV,
clude the $12,000 Country Y housing expenses
residence (Aug. 17 – Dec. 31, 2006), would be
and V of Form 2555. When filling out Part III, be
with Jim’s $18,000 Country X housing ex-
$4,948 ($36.12 × 137 days). Tom’s housing
sure to insert the beginning and ending dates of
penses. This results in a larger total housing
amount would be $8,052 ($13,000 – $4,948). If,
your 12-month period and the dates of your
exclusion.
instead, Jane claims the housing exclusion, their
arrivals and departures, as requested in the
Jim and Judy had taxable U.S. interest in-
housing expenses would be limited to $10,500
travel schedule.
come of $7,500 for the year. The Adamses had
($7,500 + $3,000) and their base housing
You must fill out Part VI if you are claiming a
no other income for the year and do not itemize
amount, using Jane’s period of residence (Sept.
foreign housing exclusion or deduction.
deductions.
15 – Dec. 31, 2006), would be $3,901 ($36.12 ×
Fill out Part IX if you are claiming the foreign
The Adamses report their income and figure
108 days). Jane’s housing amount would be
housing deduction.
their foreign earned income exclusions and for-
$6,599 ($10,500 – $3,901).
If you are claiming the foreign earned income
eign housing exclusion, as shown on the accom-
exclusion, fill out Part VII.
panying filled-in forms.
Finally, if you are claiming the foreign earned
First, they list their income on the front of
income exclusion, the foreign housing exclu-
Form 1040. Their combined salaries, including
sion, or both, fill out Part VIII
Jim’s $18,000 housing allowance, total
$133,000. They enter this on line 7. They enter
If you and your spouse both qualify to claim
their interest income of $7,500 on line 8a.
the foreign earned income exclusion, the foreign
At this point, Jim will complete Form 2555
housing exclusion, or the foreign housing de-
duction, you and your spouse must file separate
and Judy will complete Form 2555-EZ to figure
Page 22
Chapter 4 Foreign Earned Income and Housing: Exclusion – Deduction
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