Publication 54 - Tax Guide For U.s. Citizens And Resident Aliens Abroad - 2006 Page 31
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44information from the organization itself, contact
preceding year if the move is from a foreign
which you incur the storage expenses. You can-
IRS at the address below.
country to the United States.
not deduct the amount allocable to excluded
You cannot deduct more than the percent-
income.
Amount allocable to excluded income. To
age limit on charitable contributions applied to
figure the amount of your moving expense that is
your Canadian, Israeli, or Mexican source in-
allocable to your excluded foreign earned in-
Moving Expense Attributable to
come. If you or a member of your family is
come (and not deductible), you must multiply
Foreign Earnings in 2 Years
enrolled at a Canadian college or university, the
your total moving expense deduction by a frac-
limit does not apply to gifts to that school. For
tion. The numerator (top number) of the fraction
If your moving expense deduction is attributable
additional information on the deduction of contri-
is the total of your excluded foreign earned in-
to your foreign earnings in 2 years (the year of
butions to Canadian charities, see Publication
come and housing amounts for both years and
the move and the following year), you should
597.
the denominator (bottom number) of the fraction
request an extension of time to file your return
For more information on these treaty provi-
is your total foreign earned income for both
for the year of the move until after the end of the
sions, write to Internal Revenue Service, Inter-
years.
national Section, P.O. Box 920, Bensalem, PA
following year. By then, you should have all the
19020-8518.
information needed to properly figure the mov-
Example. You are transferred by your em-
ing expense deduction. See Extensions under
ployer on November 1, 2005, to Monaco. Your
When To File and Pay in chapter 1.
tax home is in Monaco, and you qualify as a
If you do not request an extension, you
Moving Expenses
bona fide resident of Monaco for the entire tax
should figure the part of the moving expense
year 2006. In 2005, you paid $6,000 for allowa-
that you cannot deduct because it is allocable to
ble moving expenses for your move from the
If you moved to a new home in 2006 because of
the foreign earned income you are excluding.
United States to Monaco. You were fully reim-
your job or business, you may be able to deduct
You do this by multiplying the moving expense
bursed (under a nonaccountable plan) for these
the expenses of your move. Generally, to be
by a fraction, the numerator (top number) of
expenses in the same year. The reimbursement
deductible, the moving expenses must have
which is your excluded foreign earned income
is included in your income. Your only other in-
been paid or incurred in connection with starting
for the year of the move, and the denominator
come consists of $14,000 wages earned in 2005
work at a new job location. See Publication 521,
(bottom number) of which is your total foreign
after the date of your move, and $82,400 wages
Moving Expenses, for a complete discussion of
earned income for the year of the move. Once
earned in Monaco for 2006.
the deduction for moving expenses and informa-
you know your foreign earnings and exclusion
Because you did not meet the bona fide
tion about moves within the United States.
for the following year, you must either:
residence test for at least 120 days during 2005,
•
the year of the move, the moving expenses are
Foreign moves. A foreign move is a move in
Adjust the moving expense deduction by
for services you performed in both 2005 and the
connection with the start of work at a new job
filing an amended return for the year of the
following year, 2006. Your total foreign earned
location outside the United States and its pos-
move, or
income for both years is $102,400, consisting of
sessions. A foreign move does not include a
•
Recapture any additional unallowable
$14,000 wages for 2005, $82,400 wages for
move back to the United States or its posses-
amount as income on your return for the
2006, and $6,000 moving expense reimburse-
sions.
following year.
ment for both years.
You have no housing exclusion. The total
Allocation of Moving
If, after you make the final computation, you
amount you can exclude is $95,551, consisting
Expenses
have an additional amount of allowable moving
of the $82,400 full-year exclusion for 2006 and a
expense deduction, you can claim this only on
$13,151 part-year exclusion for 2005 ($80,000
When your new place of work is in a foreign
an amended return for the year of the move. You
times the fraction of 60 qualifying bona fide resi-
country, your moving expenses are directly con-
cannot claim it on the return for the second year.
dence days over 365 total days in the year). To
nected with the income earned in that foreign
find the part of your moving expenses that is not
country. If you exclude all or part of the income
Forms To File
deductible, multiply your $6,000 total expenses
that you earn at the new location under the
by the fraction $95,551 over $102,400. The re-
foreign earned income exclusion or the foreign
Report your moving expenses on Form 3903.
sult, $5,599, is your nondeductible amount.
housing exclusion, you cannot deduct the part of
Report your moving expense deduction on line
your moving expense that is allocable to the
You must report the full amount of the
26 of Form 1040. If you must reduce your mov-
!
excluded income.
moving expense reimbursement in the
ing expenses by the amount allocable to ex-
Also, you cannot deduct the part of the mov-
year in which you received the reim-
CAUTION
cluded income (as explained later under How To
ing expense related to the excluded income for a
bursement. In the preceding example, this year
Report Deductions), attach a statement to your
move from a foreign country to the United States
was 2005. You attribute the reimbursement to
return showing how you figured this amount.
if you receive a reimbursement that you are able
both 2005 and 2006 only to figure the amount of
For more information about figuring moving
to treat as compensation for services performed
foreign earned income eligible for exclusion for
expenses, see Publication 521.
in the foreign country.
each year.
Year to which expense is connected. The
Move between foreign countries. If you
moving expense is connected with earning the
move between foreign countries, your moving
Contributions to
income (including reimbursements, as dis-
expense is allocable to income earned in the
cussed in chapter 4 under Reimbursement of
year of the move if you qualified under either the
Individual Retirement
moving expenses) either entirely in the year of
bona fide residence test or the physical pres-
the move or in 2 years. It is connected with
Arrangements
ence test for a period that includes at least 120
earning the income entirely in the year of the
days in the year of the move.
move if you qualify under the bona fide resi-
Contributions to your individual retirement ar-
dence test or physical presence test for at least
New place of work in U.S. If your new place
rangements (IRAs) that are traditional IRAs or
120 days during that tax year.
of work is in the United States, the deductible
Roth IRAs are generally limited to the lesser of
If you do not qualify under either the bona
moving expenses are directly connected with
$4,000 ($5,000 if 50 or older in 2006) or your
fide residence test or the physical presence test
the income earned in the United States. If you
compensation that is includible in your gross
for at least 120 days during the year of the move,
treat a reimbursement from your employer as
income for the tax year. Therefore, do not take
the expense is connected with earning the in-
foreign earned income (see the discussion in
into account compensation you exclude under
come in 2 years. The moving expense is con-
chapter 4), you must allocate deductible moving
either the foreign earned income exclusion or
nected with the year of the move and the
expenses to foreign earned income.
the foreign housing exclusion. Do not reduce
following year if the move is from the United
States to a foreign country. The moving expense
Storage expenses. These expenses are at-
your compensation by the foreign housing de-
is connected with the year of the move and the
tributable to work you do during the year in
duction.
Chapter 5 Exemptions, Deductions, and Credits
Page 31
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