Foreign Housing Exclusion: How Expats Exclude Housing Costs Beyond the FEIE
- What Is the Foreign Housing Exclusion?
- Who Qualifies for the Foreign Housing Exclusion?
- How Much Can You Exclude for Housing in 2026?
- Which Housing Expenses Qualify?
- How Do You Calculate the Foreign Housing Exclusion?
- How Does the Foreign Housing Deduction Work for Self-Employed Expats?
- How Do Married Couples Claim the Housing Exclusion?
- How Do You Claim the Foreign Housing Exclusion on Form 2555?
- Frequently Asked Questions about the Foreign Housing Exclusion
- The Housing Exclusion Pays Off Once Your Income Tops the FEIE Limit
The Foreign Housing Exclusion allows Americans working abroad to exclude part of their rent and other housing costs from their U.S. taxable income, in addition to the Foreign Earned Income Exclusion (FEIE). On your 2026 tax return, filed in 2027, you can exclude housing costs above a $21,264 base amount. In most places, costs count up to $39,870, so the most you can exclude is $18,606. The IRS sets higher limits for expensive cities such as Geneva, Hong Kong, and London. Employees claim the exclusion, and self-employed expats claim the Foreign Housing Deduction instead, both on Form 2555.
You don’t need a housing allowance to qualify for the foreign housing exclusion: your salary counts as employer-provided pay. The exclusion adds to the total you exclude only when your foreign earned income exceeds your FEIE limit ($132,900 for a full year); below that, the FEIE alone covers your pay. It lowers your income tax, not your self-employment tax. This guide covers who qualifies, the 2026 city limits, which expenses count, and how to calculate and claim your amount. Our foreign housing exclusion calculator can help you run the numbers.
What Is the Foreign Housing Exclusion?
The foreign housing exclusion is a U.S. tax benefit that allows you to exclude reasonable housing costs above a base amount from your taxable income when you live and work abroad. It uses the same qualifying tests as the FEIE and is claimed on the same form. Its self-employed version, the foreign housing deduction, is claimed as an adjustment to income instead.
The Exclusion Is for Employees, and the Deduction Is for the Self-Employed
The housing exclusion applies to housing paid for with employer-provided amounts. The IRS counts your salary as an employer-provided amount, along with housing reimbursements, rent your employer pays your landlord, the fair rental value of company housing you’re taxed on, tax equalization payments, and payments for your children’s schooling. If you have no self-employment income, your entire housing amount is treated as paid by your employer.
The foreign housing deduction covers housing paid for with self-employment earnings. If you have both types of income, you split the amount between them.
Your Housing Exclusion Is Calculated Before the FEIE
The IRS requires you to calculate the housing exclusion first. Your FEIE is then limited to the smaller of $132,900 or your foreign earned income minus your housing exclusion. Together, the two exclusions can never exceed what you earned abroad. The FEIE and the housing exclusion are separate choices on Form 2555, so you can claim one without the other.
A “Foreign Housing Allowance” From Your Employer Is Taxable Pay
Many people search for this benefit under the term “foreign housing allowance.” A housing allowance paid by your employer is part of your taxable wages, and the foreign housing exclusion can exclude part of it from income. Our FAQ on whether an employer housing allowance is taxable covers payroll taxes and company-provided lodging.
Paying High Rent Abroad?
Who Qualifies for the Foreign Housing Exclusion?
You qualify for the foreign housing exclusion or deduction if your tax home is in a foreign country and you meet either the Bona Fide Residence Test or the Physical Presence Test. These are the same tests used for the FEIE. You also need foreign-earned income and housing costs to exceed the base amount for the days you qualify.
You Need a Foreign Tax Home and One of Two Tests
Your tax home is generally your main place of work. On top of that, you must meet one of these tests:
- Physical Presence Test: 330 full days in foreign countries during any 12 consecutive months.
- Bona Fide Residence Test: residence in a foreign country for an uninterrupted period that includes a full tax year.
Our comparison of the Bona Fide Residence Test vs. Physical Presence Test explains which one may fit you. If war or civil unrest forced you to leave a country early, the FEIE waiver may still allow you to qualify.
Only Your Qualifying Days Count
Only housing costs for the part of the year you qualify count. If you qualify for 200 days, both the base amount and your housing limit are prorated to those 200 days.
U.S. Government Employees Follow Different Rules
Pay from the U.S. Government to its employees is not foreign earned income, so it doesn’t qualify for either exclusion. If you or your spouse receive a nontaxable U.S. Government housing allowance, you must reduce your housing amount by that allowance for the period you claim the benefit.
How Much Can You Exclude for Housing in 2026?
For 2026, the most you can exclude for housing in most locations is $18,606. That is the $39,870 limit on housing expenses minus the $21,264 base amount. In high-cost cities, the IRS raises the expense limit, so the most you can exclude is the city’s limit minus $21,264.
| 2026 Figure (Tax Return Filed in 2027) | Full Year | Per Day |
|---|---|---|
| FEIE limit | $132,900 | $364.11 |
| Base housing amount (16% of the FEIE) | $21,264 | $58.26 |
| General limit on housing expenses (30% of the FEIE) | $39,870 | $109.23 |
| Most you can exclude in most locations | $18,606 | $50.98 |
The per-day figures are the full-year amounts divided by 365 (366 in a leap year). You use them when you qualify for only part of the year.
High-Cost Cities Have Higher Limits
The IRS publishes higher limits on housing expenses for expensive locations each year. These are the 2026 limits for common expat cities, published by the IRS in Notice 2026-25, with the most you can exclude for a full year:
| City | 2026 Limit on Housing Expenses | Most You Can Exclude (Full Year) |
|---|---|---|
| Geneva, Switzerland | $116,900 | $95,636 |
| Hong Kong | $114,300 | $93,036 |
| Bermuda | $90,000 | $68,736 |
| Singapore | $86,700 | $65,436 |
| Paris area, France | $73,600 | $52,336 |
| Vancouver, Canada | $73,400 | $52,136 |
| Milan, Italy | $73,200 | $51,936 |
| London, United Kingdom | $68,600 | $47,336 |
| Tokyo, Japan | $67,300 | $46,036 |
| Zurich, Switzerland | $67,218 | $45,954 |
| Sydney, Australia | $65,600 | $44,336 |
| Toronto, Canada | $62,700 | $41,436 |
| Madrid, Spain | $59,700 | $38,436 |
| Dubai, United Arab Emirates | $57,174 | $35,910 |
| Amsterdam, Netherlands | $52,900 | $31,636 |
| Abu Dhabi, United Arab Emirates | $49,687 | $28,423 |
| Rome, Italy | $49,000 | $27,736 |
| Mexico City, Mexico | $47,900 | $26,636 |
| Lisbon, Portugal | $44,800 | $23,536 |
| Berlin, Germany | $44,100 | $22,836 |
If your city isn’t on the IRS list, the general $39,870 limit usually applies. The United Kingdom also sets a $44,200 limit for cities it doesn’t name separately, and a few other countries have similar rows, so check your country’s rows in the notice. Once you know your limit, you can run the numbers for your city.
New Limits Can Sometimes Apply to the Year Before
The IRS publishes new city limits each year in a notice. In recent years, each notice has allowed you to use the new limit for the prior year when it is higher for your city. If your city’s limit went up, check the latest notice before you file, or consider an amended return if you already filed.
Which Housing Expenses Qualify?
Qualified housing expenses are the reasonable costs of your home abroad for you and, if they live with you, your spouse and dependents. Rent, utilities, and insurance count. Buying, improving, or paying off a home does not, and costs the IRS considers lavish or extravagant for your area are left out.
Qualified Housing Expenses
The Instructions for Form 2555 list these housing expenses:
- Rent for your home abroad
- Utilities, other than telephone charges
- Real and personal property insurance
- Nonrefundable fees paid to get a lease
- Rental of furniture and accessories
- Residential parking
- Household repairs
- Fair rental value of employer-provided housing, if you didn’t exclude it separately as lodging provided for your employer’s convenience
Expenses That Don’t Count
- Telephone charges and pay television
- Domestic labor, such as a housekeeper or gardener
- Buying furniture or accessories
- Buying or improving a house, mortgage principal, and depreciation
- Deductible interest and taxes
- Meals and lodging you already excluded as provided for your employer’s convenience
Owning Your Home Abroad Limits What Counts
If you own your home, the highest costs don’t count. The purchase price, mortgage principal, and deductible mortgage interest and property taxes are all left out. Insurance, utilities, and household repairs still count, so the exclusion usually helps renters more than owners. Our guide for foreign property owners covers the rest of owning a home abroad.
A Second Household Counts Only When Conditions Are Adverse
Normally, if you keep two homes abroad, only the one with the closer relationship to your tax home counts. If you keep a separate home abroad for your spouse or dependents because living conditions at your tax home are dangerous, unhealthful, or otherwise adverse, you can include the costs of that second household as well.
How Do You Calculate the Foreign Housing Exclusion?
To calculate your foreign housing exclusion, total your qualified housing expenses, cap them at your location’s limit, and subtract the base amount. The result is your housing amount, which you exclude if you’re an employee or deduct if you’re self-employed. If you qualified for only part of the year, prorate both the base and the limit by your qualifying days.
- Total your qualified housing expenses for the days you qualify.
- Cap them at your location’s limit ($39,870), a higher city limit, or the per-day figure multiplied by your qualifying days.
- Subtract the base housing amount: $21,264 for a full year, or $58.26 per qualifying day.
- Claim the result as your housing exclusion (employees) or housing deduction (self-employed).
Our foreign housing exclusion calculator covers additional scenarios, including a mid-year move.
Example 1: 200 Qualifying Days in Singapore
Priya meets the Physical Presence Test, and 200 days of 2026 fall in her qualifying period in Singapore. Her rent, utilities, and renter’s insurance for those days total $50,000.
- Base housing amount for the qualifying period: $58.26 × 200 = $11,652
- Singapore limit for the qualifying period: $237.53 × 200 = $47,506
- Expenses that count: $47,506 (her $50,000 is above the limit)
- Housing exclusion: $47,506 − $11,652 = $35,854
Her FEIE limit is prorated to $72,822 and capped at her foreign earned income minus her $35,854 housing exclusion.
Example 2: When Housing and the FEIE Cover All of Your Foreign Earned Income
Daniel works in Geneva for a full year, earns $150,000, and spends $70,000 on rent and utilities. Here’s how the two exclusions combine:
| Step | Amount |
|---|---|
| Housing expenses (below Geneva’s $116,900 limit) | $70,000 |
| Minus the base housing amount | −$21,264 |
| Housing exclusion | $48,736 |
| FEIE: smaller of $132,900 or $150,000 − $48,736 | $101,264 |
| Total excluded | $150,000 |
Without the housing exclusion, Daniel’s FEIE would stop at $132,900, leaving $17,100 taxable. With it, all $150,000 of his foreign earned income is excluded.
Moving Cities During the Year
If you move during the year, you use a separate limit for each location: each city’s per-day limit multiplied by the number of days you lived there, added together. Our FAQ on changing countries mid-tax year explains how a move affects the FEIE tests.
How Does the Foreign Housing Deduction Work for Self-Employed Expats?
The foreign housing deduction is the self-employed version of the foreign housing exclusion. It uses the same expenses, base amount, and location limits, but it’s claimed as an adjustment to income on Schedule 1 and is limited to foreign earned income that your FEIE and any housing exclusion didn’t already exclude. Any unused amount carries over one year only.
The Deduction Is Limited to Income the FEIE Didn’t Exclude
Your housing deduction can’t exceed your foreign-earned income minus your FEIE and any housing exclusion. For example, Elena is a self-employed consultant in Madrid with foreign earned income of $160,000 and $60,000 in qualified housing costs:
| Step | Amount |
|---|---|
| Housing expenses, cut to Madrid’s $59,700 limit | $59,700 |
| Minus the base housing amount | −$21,264 |
| Housing amount | $38,436 |
| FEIE | $132,900 |
| Deduction limit: $160,000 − $132,900 | $27,100 |
| Deduction this year | $27,100 |
| Carried over to next year | $11,336 |
Unused Deduction Carries Over One Year Only
The portion of your housing deduction that is blocked by the limit can be carried over to the next year only. You can deduct it then, up to that year’s foreign earned income minus that year’s FEIE, housing exclusion, and housing deduction. Anything you still can’t use after that year is lost.
Employees With Self-Employment Income Split the Amount
If you earn both wages and self-employment income, the exclusion share is your housing amount multiplied by your employer-provided amounts, divided by your foreign earned income. The rest is your deduction. If $30,000 of your $120,000 in foreign earned income is salary and your housing amount is $16,000, you exclude $4,000 and deduct up to $12,000.
Neither Reduces Self-Employment Tax
The foreign housing exclusion and deduction lower your income tax but not your self-employment tax. You still owe self-employment tax on your net earnings, reported on Schedule SE, unless a totalization agreement exempts you.
How Do Married Couples Claim the Housing Exclusion?
If you and your spouse both qualify and live in the same home, you can calculate your housing amounts jointly or separately on a joint return, but the same expense can’t be excluded twice. If you file separate returns, you must calculate them separately. Couples in separate homes far enough apart can each claim their own.
Couples in One Household Can Calculate It Jointly or Separately
- Jointly: you combine your housing expenses, subtract one base amount, and either spouse, but not both, claims the exclusion or deduction. If you qualify for different periods and the spouse with the shorter period claims it, only expenses for that shorter period count.
- Separately: each spouse subtracts their own full base amount, and you can allocate the expenses to one spouse or split them, as long as no expense is excluded twice.
Because each spouse who calculates separately subtracts a full base amount, the IRS notes that allocating all housing expenses to one spouse may be advantageous for couples living together and filing jointly.
Separate Households More Than a Commute Apart Can Each Claim
You can each claim the exclusion or deduction for your own home if your tax homes aren’t within a reasonable commuting distance of each other and neither home is within commuting distance of the other spouse’s tax home. Our FAQ on whether both spouses can claim the full FEIE covers the earned income side.
How Do You Claim the Foreign Housing Exclusion on Form 2555?
You claim the foreign housing exclusion or deduction on Form 2555, which you attach to Form 1040. Part VI calculates your housing amount and housing exclusion, Part VIII totals your exclusions, and Part IX calculates the housing deduction, which flows to Schedule 1.
- Confirm you qualify under the Bona Fide Residence Test or the Physical Presence Test.
- Complete Form 2555: Part VI for your housing amount and exclusion, Part VIII for your total exclusions, and Part IX for the deduction. Our Form 2555 guide walks through each line.
- Attach Form 2555 to your Form 1040.
- Keep your lease, utility bills, and proof of payment for every expense you include, converted to dollars with the IRS foreign exchange rates.
Your Choice Stays in Effect Until You Revoke It
Once you choose the housing exclusion, it remains in effect for later years unless you revoke it. The FEIE and the housing exclusion are separate choices and are revoked separately. If you revoke FEIE, you generally can’t choose it again for the next five tax years without IRS approval.
Claiming It Rules Out Some Credits
If you claim either exclusion or the housing deduction, you can’t claim the additional child tax credit or the earned income credit for that year. You also can’t take a Foreign Tax Credit for foreign tax on income you excluded, though foreign tax on income above your exclusions can still be credited, and any unused credit can carry over. Our FEIE vs. FTC comparison and our guide to the Child Tax Credit for expats explain how these choices interact.
If You Missed It on an Earlier Return
You usually make the choice on a return filed on time (including extensions) or on an amended return for a return you filed on time. If you qualified but didn’t claim the housing exclusion, an amended return may let you add it. Our FAQ on claiming the FEIE on a prior-year return explains the time limits and exceptions. If you also have past returns you never filed, our guide to the Streamlined Filing Compliance Procedures covers catching up.
Frequently Asked Questions about the Foreign Housing Exclusion
The foreign housing exclusion applies to employees, and the foreign housing deduction applies to self-employed expats. The exclusion covers housing paid with employer-provided amounts, including your salary, and removes that amount from your gross income. The deduction covers housing paid with self-employment earnings and is claimed as an adjustment to income on Schedule 1. The deduction is limited to foreign earned income that the FEIE and any housing exclusion didn’t already exclude, and any excess carries over one year only.
Phone bills don’t count toward the foreign housing exclusion or deduction, and the IRS doesn’t say whether internet bills do. The Instructions for Form 2555 exclude telephone charges and pay television from foreign housing expenses. The instructions don’t mention internet service. Utilities other than telephone charges count, along with rent, real and personal property insurance, residential parking, and household repairs.
No. If your foreign earned income is at or below your FEIE limit, the foreign housing exclusion does not increase the total amount you exclude. The FEIE limit is $132,900 for a full year in 2026 and is prorated if you qualify for only part of the year. At or below that limit, the FEIE alone can exclude all of your foreign earned income. The IRS caps the FEIE at your foreign earned income minus your housing exclusion, so adding the housing exclusion only shifts part of the same income from one exclusion to the other. The foreign housing exclusion increases your total exclusion only when your foreign earned income is above your FEIE limit.
Housing costs above your city’s limit don’t count toward the foreign housing exclusion. The IRS limit caps your qualified housing expenses before the $21,264 base amount for 2026 is subtracted. For a full year in 2026, the most you can exclude is your city’s limit minus $21,264. In locations with the general $39,870 limit, the maximum foreign housing exclusion is $18,606 for a full year. In London, where the 2026 limit is $68,600, the maximum is $47,336.
The Housing Exclusion Pays Off Once Your Income Tops the FEIE Limit
The foreign housing exclusion matters most when your foreign earned income is above the FEIE limit, and you live in a high-cost city, where it can carry your total exclusion up to everything you earn abroad. Below that limit, the FEIE already covers your pay. For self-employed expats, the deduction limit and its one-year carryover decide how much you can use. Our guide to U.S. expat taxes and the 2026 standard deduction and tax brackets covers how any income you don’t exclude is taxed.
Greenback’s accountants calculate your housing amount, location limit, and proration on Form 2555, along with your FEIE. If you’re a U.S. citizen living abroad paying high rent, we help you claim the housing exclusion correctly. Learn more about how we help U.S. citizens living abroad and corporate expats. If you’re self-employed, we help you track your housing deduction and carryover from year to year. Learn more about how we help self-employed expats.
Claim Your Housing Exclusion With Confidence
This article is for general information. Housing limits change each year, and every situation is different, so please consult a qualified tax professional about yours before you file.
Featured In
