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

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must apply for IRS approval. You do this by

meet the bona fide residence test or the physical

Depreciation or amortization of property or

requesting a ruling from the IRS.

improvements.

presence test. The annual salary is determined

on January 1 of the year in which your tax year

Mail your request for a ruling, in dupli-

begins.

cate, to:

No double benefit. You cannot in-

On January 1, 2001, the GS – 14 salary was

clude in housing expenses the value of

$65,983 per year; 16% of this amount comes to

meals or lodging that you exclude from

CAUTION

$10,557 or $28.92 per day. To figure your base

Associate Chief Counsel (International)

gross income (see Exclusion of Meals and

amount if you are a calendar-year taxpayer,

Internal Revenue Service

Lodging, earlier) or that you deduct as moving

multiply $28.92 by the number of your qualifying

CC:INTL

expenses.

days during 2001. (See Limit on Excludable

P.O. Box 7604

Amount, earlier.) Subtract the result from your

Second foreign household. Ordinarily, if

Ben Franklin Station

total housing expenses for 2001 to find your

you maintain two foreign households, your rea-

Washington, DC 20044.

housing amount.

sonable foreign housing expenses include only

Because requesting a ruling can be complex,

costs for the household that bears the closer

you may need professional help. Also, the IRS

Example. You qualify under the physical

relationship (not necessarily geographic) to your

charges a fee for issuing these rulings. For more

presence test for all of 2001. During the year,

tax home. However, if you maintain a second,

information, see Revenue Procedure 2001 – 1,

you spend $12,800 for your housing. Your hous-

separate household outside the United States

which is published in Internal Revenue Bulletin

ing amount is $12,800 minus $10,557, or

for your spouse or dependents because living

No. 2001 – 1.

$2,243.

conditions near your tax home are dangerous,

In deciding whether to give approval, the IRS

unhealthful, or otherwise adverse, include the

will consider any facts and circumstances that

U.S. Government allowance. You must re-

expenses for the second household in your rea-

may be relevant. These may include a period of

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

sonable foreign housing expenses. You cannot

residence in the United States, a move from one

ment allowance or similar nontaxable allowance

include expenses for more than one second

foreign country to another foreign country with

intended to compensate you or your spouse for

foreign household at the same time.

different tax rates, a substantial change in the

the expenses of housing during the period for

If you maintain two households and you ex-

tax laws of the foreign country of residence or

which you claim a foreign housing exclusion or

clude the value of one because it is provided by

physical presence, and a change of employer.

deduction.

your employer, you can still include the ex-

Foreign tax credit. Once you choose to ex-

penses for the second household in figuring a

Housing expenses. Housing expenses in-

clude either foreign earned income or foreign

foreign housing exclusion or deduction.

clude your reasonable expenses paid or in-

housing costs, you cannot take a foreign tax

Adverse living conditions include a state of

curred for housing in a foreign country for you

credit for taxes on income you can exclude. If

warfare or civil insurrection in the general area of

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

you do take the credit, one or both of the choices

your tax home and conditions under which it is

dependents.

may be considered revoked. See Credit for For-

not feasible to provide family housing (for exam-

eign Income Taxes in chapter 5 for more infor-

ple, if you must live on a construction site or

Consider only housing expenses for the part

mation.

drilling rig).

of the year that your tax home is in a foreign

country and that you meet either the bona fide

Earned income credit. You will not qualify for

Foreign Housing Exclusion

residence test or the physical presence test.

the earned income credit if you claim the foreign

Housing expenses include:

earned income exclusion, the foreign housing

If you do not have self-employment income, all

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exclusion, or the foreign housing deduction for

Rent,

of your earnings are employer-provided

the year. For more information on this credit, see

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amounts and your entire housing amount is con-

The fair rental value of housing provided in

Publication 596.

sidered paid for with those employer-provided

kind by your employer,

amounts. This means that you can exclude (up

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Repairs,

to the limits) your entire housing amount.

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Foreign Housing

Utilities (other than telephone charges),

Employer-provided amounts. These include

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Real and personal property insurance,

any amounts paid to you or paid or incurred on

Exclusion and

your behalf by your employer that are taxable

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Nondeductible occupancy taxes,

foreign earned income (without regard to the

Deduction

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Nonrefundable fees for securing a lease-

foreign earned income exclusion) to you for the

hold,

year. Employer-provided amounts include:

In addition to the foreign earned income exclu-

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Rental of furniture and accessories, and

sion, you can also claim an exclusion or a de-

1) Your salary,

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duction from gross income for your housing

Residential parking.

2) Any reimbursement for housing expenses,

amount if your tax home is in a foreign country

and you qualify under either the bona fide resi-

3) Amounts your employer pays to a third

Housing expenses do not include:

dence test or the physical presence test.

party on your behalf,

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Expenses that are lavish or extravagant

The housing exclusion applies only to

4) The fair rental value of company-owned

under the circumstances,

amounts considered paid for with employer-pro-

housing furnished to you unless that value

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vided amounts. The housing deduction applies

Deductible interest and taxes (including

is excluded under the rules explained

only to amounts paid for with self-employment

deductible interest and taxes of a

under the rules explained earlier at Exclu-

earnings.

tenant-stockholder in a cooperative hous-

sion of Meals and Lodging,

If you are married and you and your spouse

ing corporation),

each qualifies under one of the tests, see Mar-

5) Amounts paid to you by your employer as

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The cost of buying property, including prin-

ried Couples Living Apart, later.

part of a tax equalization plan, and

cipal payments on a mortgage,

6) Amounts paid to you or a third party by

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Housing Amount

The cost of domestic labor (maids, gar-

your employer for the education of your

deners, etc.),

dependents.

Your housing amount is the total of your housing

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Pay television subscriptions,

expenses for the year minus a base amount.

Choosing the exclusion. You can choose

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Improvements and other expenses that in-

Base amount. The base amount is 16% of the

the housing exclusion by completing the appro-

crease the value or appreciably prolong

annual salary of a GS – 14, step 1, U.S. Govern-

priate parts of Form 2555. Follow the rules ex-

the life of property,

ment employee, figured on a daily basis, times

plained earlier in Choosing the Exclusion under

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the number of days during the year that you

Purchased furniture or accessories, or

Foreign Earned Income Exclusion. You cannot

Page 20

Chapter 4 Foreign Earned Income and Housing: Exclusion – Deduction

Publication 54 - Tax Guide For U.s. Citizens And U.s. Citizens Abroad - 2001 Page 20

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