Irs Publication 54 - Tax Guide For U.s. Citizens And Resident Aliens Abroad

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No double benefit. You cannot in-

by the number of days in your qualifying period

Amounts your employer pays to a third

that fall within your tax year.

clude in housing expenses the value of

party on your behalf,

For 2008, the maximum foreign earned in-

meals or lodging that you exclude from

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CAUTION

The fair rental value of company-owned

come exclusion is $87,600 per year; 16% of this

gross income (see Exclusion of Meals and

housing furnished to you unless that value

amount is $14,016, or $38.30 per day. To figure

Lodging, earlier) or that you deduct as moving

is excluded under the rules explained ear-

your base housing amount if you are a calen-

expenses.

lier at Exclusion of Meals and Lodging,

dar-year taxpayer, multiply $38.30 by the num-

Limit on housing expenses. The amount

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ber of your qualifying days during 2008. (See

Amounts paid to you by your employer as

of qualified housing expenses eligible for the

Part-year exclusion under Limit on Excludable

part of a tax equalization plan, and

housing exclusion and housing deduction is lim-

Amount, earlier.) Subtract the result from your

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Amounts paid to you or a third party by

ited. The limit is generally 30% of the maximum

total housing expenses (up to the applicable

your employer for the education of your

foreign earned income exclusion (computed on

limit) to find your housing amount.

dependents.

a daily basis), multiplied by the number of days

in your qualifying period that fall within your tax

Example. Your qualifying period includes all

year. For 2008, this is generally $71.80 per day

Choosing the exclusion. You can choose

of 2008. During the year, you spent $15,500 for

($26,280 per year). However, the limit will vary

your housing. This is below the limit for the

the housing exclusion by completing the appro-

depending upon the location of your foreign tax

location in which you incurred the expenses.

priate parts of Form 2555. You cannot use Form

home.

Your housing amount is $15,500 minus

2555-EZ to claim the housing exclusion. Other-

A qualified individual incurring housing ex-

$14,016, or $1,484.

wise, the rules about choosing the exclusion

penses in a high-cost locality during 2008 can

under Foreign Earned Income Exclusion also

U.S. Government allowance. You must re-

use housing expenses that total more than the

apply to the foreign housing exclusion.

duce your housing amount by any U.S. Govern-

standard limit on housing expenses ($26,280) to

Your housing exclusion is the lesser of:

ment allowance or similar nontaxable allowance

determine the housing amount. An individual

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That part of your housing amount paid for

intended to compensate you or your spouse for

who does not incur housing expenses in a

with employer-provided amounts, or

the expenses of housing during the period for

high-cost locality is limited to maximum housing

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which you claim a foreign housing exclusion or

expenses of $71.80 per day ($26,280 per year).

Your foreign earned income.

deduction.

The limits for high-cost localities are listed in

If you choose the housing exclusion, you must

the Instructions for Form 2555.

figure it before figuring your foreign earned in-

Housing expenses. Housing expenses in-

Second foreign household. Ordinarily, if

come exclusion. You cannot claim less than the

clude your reasonable expenses paid or in-

you maintain two foreign households, your rea-

full amount of the housing exclusion to which

curred for housing in a foreign country for you

sonable foreign housing expenses include only

you are entitled.

and (if they live with you) for your spouse and

costs for the household that bears the closer

dependents.

Figuring tax on income not excluded. If

relationship (not necessarily geographic) to your

Consider only housing expenses for the part

you claim the housing exclusion, the foreign

tax home. However, if you maintain a second,

of the year that you qualify for the foreign earned

earned income exclusion (discussed earlier), or

separate household outside the United States

income exclusion.

both, you must figure the tax on your nonex-

for your spouse or dependents because living

Housing expenses include:

cluded income using the tax rates that would

conditions near your tax home are dangerous,

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have applied had you not claimed the exclu-

Rent,

unhealthful, or otherwise adverse, include the

sions. See the instructions for Form 1040 and

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expenses for the second household in your rea-

The fair rental value of housing provided in

complete the Foreign Earned Income Tax Work-

sonable foreign housing expenses. You cannot

kind by your employer,

sheet to figure the amount of tax to enter on

include expenses for more than one second

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Form 1040, line 44. If you must attach Form

Repairs,

foreign household at the same time.

6251 to your return, use the Foreign Earned

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If you maintain two households and you ex-

Utilities (other than telephone charges),

Income Tax Worksheet provided in the instruc-

clude the value of one because it is provided by

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tions for Form 6251.

Real and personal property insurance,

your employer, you can still include the ex-

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penses for the second household in figuring a

Foreign tax credit or deduction. Once you

Nondeductible occupancy taxes,

foreign housing exclusion or deduction.

choose to exclude foreign housing amounts, you

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Nonrefundable fees for securing a lease-

Adverse living conditions include:

cannot take a foreign tax credit or deduction for

hold,

taxes on income you can exclude. If you do take

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A state of warfare or civil insurrection in

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Rental of furniture and accessories, and

a credit or deduction for any of those taxes, your

the general area of your tax home, and

choice to exclude housing amounts may be con-

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Residential parking.

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Conditions under which it is not feasible to

sidered revoked. See Publication 514 for more

provide family housing (for example, if you

information.

Housing expenses do not include:

must live on a construction site or drilling

Earned income credit. If you claim the for-

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Expenses that are lavish or extravagant

rig).

eign housing exclusion, you will not qualify for

under the circumstances,

the earned income credit for the year.

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Foreign Housing Exclusion

Deductible interest and taxes (including

deductible interest and taxes of a ten-

Foreign Housing Deduction

ant-stockholder in a cooperative housing

If you do not have self-employment income, all

corporation),

of your earnings are employer-provided

If you do not have self-employment income, you

amounts and your entire housing amount is con-

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cannot take a foreign housing deduction.

The cost of buying property, including prin-

sidered paid for with those employer-provided

How you figure your housing deduction de-

cipal payments on a mortgage,

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

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The cost of domestic labor (maids, gar-

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

deners, etc.),

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 -

Employer-provided amounts. These include

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ployer-provided income. In either case, the

Pay television subscriptions,

any amounts paid to you or paid or incurred on

amount you can deduct is subject to the limit

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Improvements and other expenses that in-

your behalf by your employer that are taxable

described later.

crease the value or appreciably prolong

foreign earned income (without regard to the

the life of property,

foreign earned income exclusion) to you for the

Self-employed — no employer-provided

amounts. If none of your housing amount is

year. Employer-provided amounts include:

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Purchased furniture or accessories, or

considered paid for with employer-provided

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Your salary,

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Depreciation or amortization of property or

amounts, such as when all of your income is

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improvements.

Any reimbursement for housing expenses,

from self-employment, you can deduct your

Chapter 4 Foreign Earned Income and Housing: Exclusion – Deduction

Page 21

Irs Publication 54 - Tax Guide For U.s. Citizens And Resident Aliens Abroad - 2008 Page 21

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