As an American expat, you may find that your housing expenses are quite a bit larger than when you were living in the US! Thankfully the IRS allows you to deduct a certain portion of your housing expenses from your US expatriate taxes. David McKeegan, President and Co-Founder of Greenback Expat Tax Services explains the Foreign Housing Exclusion and how it can help you save money on your US taxes!
Hi, everybody. I’m David McKeegan with Greenback Expat Tax Services, and our question this week is on using the Foreign Housing Exclusion to reduce your US expatriate taxes. Now, the Foreign Housing Exclusion is tied to the Foreign Earned Income Exclusion, so it has the same requirements as the Foreign Earned Income Exclusion.
The Foreign Housing Exclusion is 30% of the Foreign Earned Income Exclusion amount, so for this tax year, it’s $29,280, and this is prorated for the number of days that you’re inside the foreign country. For example, if you’re in the UK for 340 days out of a 365-day period, you’d be able to exclude about 93% of your foreign-housing expenses under this formula.
Now, the amount can differ depending on which city you’re living in. The IRS recognizes that different cities have different housing costs, and so the amount has been increased in certain higher-cost cities around the world.
For example, if you live in Montreal, you can exclude $60,600. If you’re in Melbourne, you can exclude $44,600. If you’re in Hong Kong, you can exclude $114,300 of your foreign-housing costs on your US taxes. If you’re in Paris, you can exclude $82,500. If you’re in Berlin, the number is $49,400, and if you’re in London, you can exclude $88,200.
Now, a couple of examples of what qualifies as foreign-housing expenses that are excludable, so housing expenses such as rent, repairs, and utilities, excluding telephone costs, all qualify. Personal property insurance qualifies. Any leasing fees that you pay, those would qualify as well, and furniture renting or parking expenses can qualify as well. Now, if your US-based employer reimburses you for the living expenses, that reimbursement is considered taxable income, but you can use the Foreign Housing Exclusion to reduce your income on your US tax return. That’s all for this week. If you have any questions, please let us know. Thank you.
Want to know how to save more on your US expatriate taxes?
Check out this article to find out more about the US deductions and credits that can reduce your expatriate taxes.