As an American expat, you’re no stranger to the costs of living abroad. But did you know that you may be able to offset some of those costs by claiming certain tax benefits, like the foreign housing exclusion.
If you are an American living overseas, you may be able to claim advantageous tax benefits, such as the foreign housing exclusion. Part of the foreign earned income exclusion, the foreign housing exclusion allows expats to deduct certain living expenses from their taxable incomes. To qualify, you must meet either the physical presence test or the bona fide residence test and be eligible to claim the foreign earned income exclusion. Our tax accountants can help you file IRS Form 2555 by Tax Day so that you can benefit from the foreign housing exclusion as an expat living abroad.
To learn more about how the tax CPAs for American expatriates at US Tax Help can assist you during tax season, call us today at (541) 362-9127.
What is the Foreign Housing Exclusion?
When you move abroad as an American citizen, you still have a tax liability in the United States. To lower your tax liability, the IRS allows you to claim certain exclusions, credits, and deductions for your foreign income and certain foreign expenses, like foreign housing costs. But what exactly is the foreign housing exclusion, and how can it help you?
One of the biggest tax advantages for expats living abroad is the foreign earned income exclusion. This perk allows expats to exclude a portion of their foreign earned income from their U.S. taxes, lowering their tax liability. In addition to this advantage, expats may be able to claim foreign housing exclusion.
Our tax accountants can help you exclude the following housing expenses incurred from living abroad, provided they are paid for using funds earned from your taxable income:
- Rent
- Some utilities
- Some repairs
- Leasing fees
- Parking rental
- Homeowner’s insurance
- Renter’s insurance
The foreign housing exclusion and the foreign earned income exclusion impact one another. In order to figure out the limits of your foreign housing exclusion based on your income and foreign country of residence, speak with our tax CPAs for American expatriates. Claiming the foreign housing exclusion can help you offset certain living expenses that come from moving abroad as a U.S. citizen.
Who Qualifies for the Foreign Housing Exclusion?
Only certain people qualify for the foreign housing exclusion. In all likelihood, you won’t be able to claim the foreign housing exclusion right after you move abroad. To qualify, you must meet either the physical presence test or the bona fide residence test. Expats that want to benefit from the foreign housing exclusion must also figure out how that advantage plays into the foreign earned income exclusion.
Physical Presence Test
The physical presence test is a common test used by the IRS to assess expats’ eligibility for certain credits or deductions, including the foreign housing exclusion. To qualify for the physical presence test, expats must be physically present in their current foreign country of residence for at least 330 full days out of a tax year. These days don’t have to be consecutive, and you can take brief trips out of your new country of residence and still qualify.
Bona Fide Residence Test
To pass the bona fide residence test and claim the foreign housing exclusion as an American expatriate, you have to be in your new country of residence for an uninterrupted period of an entire tax year. While you can take short trips out of a foreign country during this time, you must have clear intentions of returning to your new country of residence to pass the bona fide residence test and take advantage of the foreign housing exclusion.
Foreign Earned Income Exclusion
In addition to establishing your presence or residency in a foreign country, your foreign housing exclusion amount must be a certain percentage of your total foreign earned income amount. Essentially, your qualified foreign housing costs for a tax year must be greater than 16% of your total foreign earned income to claim the foreign housing exclusion. You can’t claim the foreign housing exclusion without first assessing your eligibility for the foreign earned income exclusion. Figuring this out can be complicated, so reach out to our tax CPAs for American expatriates for help.
How Can You Claim the Foreign Housing Exclusion?
If you have spoken with our tax accountants and determined you are eligible to claim the foreign housing exclusion, what’s next? In order to take advantage of this perk, American expatriates have to file the right forms by the right deadline.
To claim the foreign housing exclusion, you have to file IRS Form 2555. The bulk of Form 2555 concerns the foreign earned income exclusion. Remember, the foreign housing exclusion is part of a greater benefit, the foreign earned income exclusion. That’s why expats can claim both advantages using the same form.
The sections of Form 2555 specifically catered to the foreign housing exclusion are parts six, eight, and nine. Using these sections, our tax CPAs for American expatriates can help you determine the sum of your qualified housing expenses for the year, your employer-provided amounts, and the total amounts you can exclude. It is still important to fill out the rest of Form 2555, as doing so will affirm your eligibility to claim the foreign housing exclusion and the foreign earned income exclusion.
To claim the foreign housing exclusion, you must file Form 2555 alongside your annual tax return by Tax Day. Our tax CPAs for American expatriates can help you file the necessary forms on time so that you can benefit from the foreign housing exclusion and other tax perks available to expatriates living abroad.
Call Our Tax Accountants to Learn More About the Foreign Housing Exclusion
If you want to lower your tax liability while living abroad, call the tax CPAs for American expatriates at US Tax Help today at (541) 362-9127.
