# Foreign Housing Exclusion



## SGJW123 (Aug 17, 2021)

Hi Forum,

we are wondering about the Foreign Housing Exclusion, as we would like to use it this year for the first time in our tax return.

What is quite unclear to me is what the IRS means with _"the foreign housing exclusion applies only to amounts considered paid for with employer-provided amounts, which includes any amounts paid to you or paid or incurred on your behalf by your employer that are taxable foreign earned income to you for the year (without regard to the foreign earned income exclusion)."_

Does this mean somebody who earns a regular salary without a special housing allowance in their employment contract or their rent paid directly by the employer couldn't use it?

We are just earning a regular base salary + bonus and pay our housing costs ourselves from these monthly earnings.

Thanks for your advice!
Best


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## Moulard (Feb 3, 2017)

SGJW123 said:


> Does this mean somebody who earns a regular salary without a special housing allowance in their employment contract or their rent paid directly by the employer couldn't use it?


Correct. Just like any other deduction you have to have actually paid it rather than having someone else pay it for you.


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## Moulard (Feb 3, 2017)

Do bear in mind that your housing expenses have to be over 30% of the FEIE to be able to exclude anything.

So unless your eligible housing costs are over $17,216 (assuming 2020 tax year) you won't actually be able to use the exclusion.


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## SGJW123 (Aug 17, 2021)

Moulard said:


> Correct. Just like any other deduction you have to have actually paid it rather than having someone else pay it for you.


Thanks, @Moulard for the quick reply.
I understand that I have to pay it myself to be able to claim it, but what I don't quite understand:
Why can I not use the housing exclusion, if I pay my rent myself from my regular monthly base earnings? (in one of the highest rent markets in the world by the way, so the 17k threshold is no issue whatsoever)

This seems to be a disadvantage to people like us who are not on an "expat package" with a fixed housing allowance $ but just making a solid, local salary in an expensive city which they use to pay rent?

Thanks and best


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## Bevdeforges (Nov 16, 2007)

Maybe I'm not understanding what you're saying, but if your base salary is already being excluded using the FEIE there's nothing to "deduct" for the housing exclusion unless you're making over and above the FEIE limit. (Though I think that's how the housing exclusion used to work - it's very possible that it has changed in the last 10 or 20 years.)


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## SGJW123 (Aug 17, 2021)

Bevdeforges said:


> Maybe I'm not understanding what you're saying, but if your base salary is already being excluded using the FEIE there's nothing to "deduct" for the housing exclusion unless you're making over and above the FEIE limit. (Though I think that's how the housing exclusion used to work - it's very possible that it has changed in the last 10 or 20 years.)


that's the problem - the income is above the FEIE 

My question is that I don't understand what the IRS means with "_the foreign housing exclusion applies only to amounts considered paid for with employer-provided amount". _

Some people seem to interpret it this way that it can only be used if an employer pays you money specifically for housing (e.g. in a monthly housing allowance or a monthly subsidy for rent). 

And I am wondering if it still can be used in case you just a have a base salary $xxxx and pay my rent out of these $xxxx every month, but on my payslip is nothing labelled as an extra housing allowance.

Thanks and best


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## Bevdeforges (Nov 16, 2007)

You need to read the instructions for the 2555 form carefully. But as I remember (this was a LONG time ago) that's sort of how the Housing Exclusion worked. (Or check the example - if there still is one - that is part of Pub. 54)

If you make, say $150K in salary and the limit for the FEIE is $110K, then you may be able to use the Housing Exclusion for the "excess" $40K - provided you have the receipts for the housing expenses to back everything up. As I recall, the examples the IRS gives are pretty complex, but at least when I read them way back when, that seemed to be what they were saying. Still, I'm remembering this from a long time ago. You need to make your own good faith effort to parse the instructions to see if you think it justifies your interpretation.


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## Moulard (Feb 3, 2017)

SGJW123 said:


> Why can I not use the housing exclusion, if I pay my rent myself from my regular monthly base earnings?


I think you misunderstood me. _employer-provided amounts_ effectively means any amount paid to you. It can be wages, an allowance of some sort or - basically anything that is treated as remuneration. So if you are paying the rent, then yes, you can claim the rent. If your employer was paying the rent, you could not claim it even though the amount would be considered payment in kind and thus taxable as income.



SGJW123 said:


> that's the problem - the income is above the FEIE


While the Housing Exclusion and the FEIE are both on the same form, you can actually use the Housing Exclusion without using the FEIE. 

You can thus use foreign tax credits AND the housing exclusion - although doing so revokes the election to use the FEIE moving forward.

That said if your foreign taxes are higher that the US federal rates, you may well find that you don't need the housing exclusion as foreign taxes may offset your entire US tax liability.

Foreign tax credits are a bit more arcane, but as a back of the envelope assessment, it may well be worthwhile comparing your US tax liability without the FEIE, and compare that to foreign taxes paid or accrued. If foreign taxes are higher, it may well be worth exploring FTCs as an alternative way to reduce your US tax liability.


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