Expert US Expat Tax Preparation. Simplified. Resolved. Designed to save you time and money.

This article was originally published on March 4, 2011. It was updated on June 16, 2014, with information relevant to the 2013-2014 tax years.

Deduct Foreign Housing Expenses on Your US ExpatriateTax Return

As you may know, as an American living overseas you may be able to deduct some of your housing expenses from your gross income on your overseas tax return. This is known as the Foreign Housing Allowance. Basically, this is the IRS’s way of saying, “Yes, we understand that the cost of housing outside the US is not the same as the cost of housing inside the US.”

As a result, you may need to spend more on housing, which could negatively impact you financially. So, the IRS offers a deduction for a part of your foreign housing expense based on where you live and how many days you live outside the US. In order to qualify, you will need to meet the Bona Fide Residence Test or the Physical Presence Test. However, in short, in order to qualify, you will need to either be living and working abroad full-time, or you will need to reside outside of the US for 330 days in a 365-day period.

How does this work? How much of my housing expense can I deduct on my US expatriate tax return?

The amount of money your are allowed to deduct is based on the Foreign Earned Income Exclusion limits. For the 2013 tax year, the FEIE is $97,600 (and $99,200 for 2014) and you can deduct up to 30% of this as part of your Foreign Housing Deduction. So, in 2013, you take $97,600 x .30 = $29,280 so you are allowed to deduct a maximum of $29,280 per year for your housing expenses.  Examples of qualifying housing expenses include rent, repairs, utilities (excluding telephone bills), personal property insurance, leasing fees, furniture rental and parking.  Expenses that do not qualify include “lavish or extravagant” expenses, mortgage payments, the cost of domestic labor, television subscriptions and purchased furniture.  If you are unsure as to which of your expenses qualify, we suggest you contact your US expat tax preparer.

However, you should also know that the IRS adjusts the maximum limitation based on geographic differences in housing costs, relative to the cost of housing in the US. The IRS publishes a table of more than 400 foreign locations which qualify for a higher deduction limit on an overseas tax return. .

How can I calculate how much I can deduct?

The first thing you need to do is calculate your base amount. Your base amount is the minimum amount of your housing that you will need to pay for, and you will not be able to deduct (think of this as the amount you would have needed to pay if you lived in the US). Currently, this is calculated as 16% of the maximum Foreign Earned Income Exclusion. For 2013, it would be $97,600 x .16 = $15,616, or $42.78 per day. Now, let’s say you live in London, where your qualified housing costs equaled $83,600, or $228.42 per day (as per form 2555), and you were outside the US for 350 days in 2010. Then, your maximum deduction would equal ($228.42 – 42.78) x 350 = $64,974. This is an additional $35,694 above the standard deduction amount — not too shabby.

Need to learn more about your overseas tax return?

The foreign housing expenses can be a significant money saving tool on an overseas tax return.  If you have questions about your US expatriate taxes, please contact us.

 

  • chae Um

    For living in Seoul, Korea, what would be the rate that I can write-off?

    Chae

    • Greenback Team

      Hi Chae,

      As an expat any where in the world paying US expat taxes, you are able to exclude up to $91,500 of your income, deduct your housing expenses, and get tax credits for any taxes you have paid to South Korea.

      To qualify as an expat:

      You must have foreign earned income
      Your tax home must be in a foreign country
      You must be one of the following:

      A US citizen who is a bona fide resident of foreign country or countries for an uninterrupted period that includes an entire tax year
      A US resident alien who is a citizen or national of a country with which the United States has an income tax treaty with a non-discrimination article in effect who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or,
      A US citizen or a US resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

      Please don’t hesitate to ask us any questions about your US expat taxes directly!

      Sincerely,

      The Greenback Team

  • albert leal

    I will like to know how much can I deduct living in Portugal.
    Also to whom I can contact in the United States for more detail information.

    Sincerely Yours

    Albert Leal

    • Greenback Team

      Hi Albert,

      As an expat any where in the world paying US expat taxes, you are able to exclude up to $91,500 of your income, deduct your housing expenses, and get tax credits for any taxes you have paid to your host country.

      To qualify as an expat:

      You must have foreign earned income
      Your tax home must be in a foreign country
      You must be one of the following:

      A US citizen who is a bona fide resident of foreign country or countries for an uninterrupted period that includes an entire tax year
      A US resident alien who is a citizen or national of a country with which the United States has an income tax treaty with a non-discrimination article in effect who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or,
      A US citizen or a US resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

      Please don’t hesitate to ask us any questions about your US expat taxes directly!

      Sincerely,

      The Greenback Team

  • James Guenthoer

    I’m trying to understand, is it better from a tax standpoint to have the foreign company pay the housing directly to the landlord and just pay me my salary or have them give me my salary plus the housing allowance and I pay the landlord? For example if my salary is $15,000 USD/month and my housing allowance is $5,000 USD/month would I want to show an income of $15K or $20K?
    Thanks

    • Greenback Team

      Hi James,

      Thank you for contacting Greenback Expat Tax Services. If your company pays for your housing expenses, they can deduct it on their taxes as an expense of doing business. If your company pays you a housing allowance, this is considered part of your salary and must be reported on your US taxes. So, for your situation, your $15,000/month salary + $5000/month housing allowance would yield a $20,000/month income reported on your taxes. You would then be able to deduct the housing expenses from your $20,000 reported income. It is probably more beneficial from your standpoint to have the housing allowance paid to you directly so that you can exclude this income with the Foreign Housing Expense Allowance. If you have more questions about your US expat taxes, do not hesitate to contact us.

      Sincerely,

      The Greenback Team

  • Thomas

    I am a US citizen and retired and moved to Ireland. My wife(Irish citizen) who is not a US citizen works in Ireland. We file with the IRS married jointly. We pay a mortgage on our house in Ireland. Do we qualify for any exclusions or deductions? If not can we deduct the mortgage interest off of our taxes?

    • Greenback Team

      Hi Thomas,

      Thank you for contacting Greenback Expat Tax Services. You would could exclude part of your wife’s income since you file jointly. Her income is considered “foreign” and “earned” – your income is not considered “earned” since you are retired and do not technically work for your compensation. She would be able to take this exclusion from her foreign earned income.

      You are able to deduct the interest on a mortgage on a foreign property.

      I hope this helps. We would be more than happy to help you prepare your US taxes to help you maximize your expat status. If this is of interest, please contact us.

      Sincerely,
      The Greenback Team

      • http://greenbacktaxservices sonya bynum

        How does this work? How much of my housing expense can I deduct on my overseas tax return?
        In paragraph three above, it mention you can not deduct mortgage payment, but you stated you can deduct interest. Can you provide more insight?

        Thanks Sonya

        • Greenback Team

          Hi Sonya,

          It would really depend on your specific situation. I would suggest that you schedule a 30 minute consultation with our accountants to understand how this affects your US expat taxes.

          Sincerely,
          The Greenback Team

  • Rick

    What happens if my wife is non-American and I’m a US Citizen and we both live in a Foreign country? Is there any additional tax advantages for this situation? Can we file jointly and get double the foreign-exclusion? Or do I always need to file “married filling separately” because my I’m the only american in the family, and all the exclusions etc apply to my income only?

    Thanks

    • Greenback Team

      Hi Rick,

      Thanks for your comment. You can opt to file as jointly and take the double foreign earned income exclusion. You must remember, though, that this will permanently leave your wife’s income taxable by the IRS. Often times, we need to work out details to determine if it is worth filing jointly or separately for our clients.

      If you would like to schedule a consultation, feel free to do so here.

      Sincerely,
      The Greenback Team

  • Livingabroad

    Hi

    I am a US citizen living abroad and own a house. I own a house in the country we reside in abroad and I have a mortgage on the house. Am I able to exclude this mortgage interest? thx

    • Greenback

      Hello,

      Thank you for contacting Greenback Expat Tax Services, we hope you are enjoying the website! With regards to your message, yes, you can exclude that mortgage interest. It is considered an itemized deduction on Schedule A, however for it to matter, the total itemized deductions would have to be above the standard deduction.

      If you have any additional questions please feel free to contact us at info(at)greenbacktaxservices.com.

      I hope this helps!

      Sincerely,

      The Greenback Team

  • H

    Hi,

    I am a Chinese Citizen with U.S greencard working in Singapore full time, in that case, can i still be eligible for that exclusion? And I am a bit confused on how much i can exclude.

    In addition to $97,600 basic deduction, how much more can i deduct for housing? And what would my tax rate be outside of claimed deduction? thanks

    • Greenback

      Hello,

      Thank you for contacting Greenback Expat Tax Services, we hope you are enjoying the website! With regards to your message, yes, you are still eligible for the Housing Allowance as long as you pass either the Bona Fide residence Test or the Physical Presence Test. Once you have passed one of these two tests, you can exclude up to 30% of the FEIE. So for 2013, you would be able to exclude $29,280 (this amount increases for those living in very expensive cities).

      If you have any additional questions please feel free to contact us at info(at)greenbacktaxservices.com.

      I hope this helps!

      Sincerely,

      The Greenback Team

  • Michael

    I am a US Citizen living abroad and have an interesting question. Suppose one fully owns a property in a foreign country (other than the USA) with no mortgage on it. Can that individual use the housing allowance? If so, how would that be calculated?

    Thanks…

    • Greenback

      Hi Michael,

      Thanks for your question! With regards to it, yes you can claim the Foreign Housing Expense, however you are not able to claim real estate taxes as a qualified housing expense. You are basically left with utilities, HOA fees, etc. Fortunately the Real Estate tax is still considered an itemized deduction.

      If you have any additional questions, or would like to discuss this further, you may also contact us directly at info(at)greenbacktaxservices.com.

      Thanks,
      Tabitha Paddock
      Greenback Customer Champion

  • Bryan

    Good Morning,

    I’m confused about the foreign income housing exclusion. If one makes the maximum of $97,600 in cash without housing benefits included, does that mean s/he would be required to pay taxes on $30,000 worth of employer paid housing benefits? In other words, are the housing benefits harmful if a person makes the amount of non-taxable income before housing benefits? Thank you so much for your help with this.

    • http://www.greenbacktaxservices.com/ Greenback Expat Tax Services

      Hello Bryan,

      Thanks for getting in touch, we hope you are finding the site useful!

      With regards to your message, the housing allowance you receive will be considered income as well. You can then use the FEIE to exclude the first ~97K, and the housing allowance to exclude additional income after that.

      I hope this helps to clear things up! If you have any further questions, please feel free to contact me directly at info(at)greenbacktaxservices.com.

      Sincerely,

      Tabitha Paddock
      Greenback Customer Champion

  • Askander

    Hi. I am an American citizen and I am planning to live in Dubai for the next 3 years. I am just slightly confused about the situation about the tax. I will be earning around 86,000 dollars a year. How much tax do i need to pay?

    • http://www.greenbacktaxservices.com/ Greenback Expat Tax Services

      Hello Askander,

      Thank you for getting in touch, we hope you are enjoying the site!

      With regards to your message, as long as you can qualify for the FEIE (either via the bona fide residence test or the physical presence test), you should be able to exclude your full salary from US taxation. With the FEIE the first 97K is exempt from tax in the US.

      Please note that the FEIE does not exclude you from self employment tax. As such, if you are self employed, I would strongly suggest speaking to one of our accountants so they can estimate your quarterly payments (as you will owe the US SE tax).

      If you have any further questions please feel free to email me at info(at)greenbacktaxservices.com .

      I hope this helps!

      Tabitha Paddock
      Greenback Customer Champion