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Information provided on this site is for general guidance
only and is often simplified. Actual IRS procedures
are complex, and taxpayers should obtain professional
assistance or use IRS sources for complete information.
Foreign
Housing Exclusion
To claim the housing exclusion, a
person must meet the Physical Presence Test or the
Bona Fide Resident Test.
The following expenses qualify for the foreign housing
exclusion:
-
Rent, or the fair rental value of housing;
-
Repairs;
-
Utilities other than telephone;
-
Real property and personal property insurance;
- Occupancy
taxes;
-
Nonrefundable security deposits or lease payments;
-
Furniture rental;
-
Residential parking fees;
-
Tax equalization payments paid by the employer;
-
Education expenses for dependent children.
Expenses
which do not qualify include interest and taxes, the
cost of buying property, domestic labor, purchased
furniture, depreciation of property or improvements.
The
US Treasury Department and Internal Revenue Service
issued Notice 2006-87 in October 2006, which provided
adjustments to the limitation on housing expenses
for the purposes of section 911 of the Internal Revenue
Code (Code) for specific locations, on the basis of
geographic differences in housing costs relative to
housing costs in the United States.
The
Tax Increase Prevention and Reconciliation Act of
2005 (TIPRA) made several changes to section 911,
one of which effectively placed a limit on the amount
of housing costs that could be taken into account
under that section. TIPRA provided the Treasury Department
with authority to adjust the new housing cost limitation
based on geographic differences in housing costs relative
to housing costs in the United States.
In
the Notice, using the approach suggested in the legislative
history to TIPRA, the Treasury exercised its authority
to increase the housing cost limitation, setting forth
new higher housing cost amounts for specific locations.
The relief provided by the Notice is retroactive to
the effective date of TIPRA.
The
full text of the Notice can be found here.
In
2007, the IRS again revised the limitation on housing
expenses for the purposes of section 911 of the Internal
Revenue Code (Code) for specific locations, on the
basis of geographic differences in housing costs relative
to housing costs in the United States. This notice
provides certain modifications and additions to the
adjusted limitations on housing expenses published
in Notice 2006-87.
Starting
with the 2006 tax year, the amount of qualified housing
expenses eligible for the housing exclusion and housing
deduction was limited.
The
limitation on housing expenses is generally 30% of
the maximum foreign earned income exclusion. For 2010,
the housing amount limitation is $27,450 for the tax
year. However, the limit will vary depending upon
the location of the qualifying individual’s
foreign tax home and the number of qualifying days
in the tax year.
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