# Tax clarifications (US citizen) - housing allowance



## NewExpat01 (Nov 26, 2009)

Can someone clarify for me the IRS tax laws on the housing allowance exclusions for US citizens? From my reading, it sounds like all additional income (such as housing allowance, furniture allowance, car allowance, etc) must be included in your income figures when filing your US taxes. But then it goes on to say you can claim deductions on housing costs (like rent) that you spend during the year. 

So is it just a wash at the end of the day? If I'm given a $30k USD housing allowance and spend it on housing rent and other costs and thus claim it as a deduction also, what's the effect on my year-end taxes?

Thanks in advance!


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## vincetruong (May 10, 2009)

housing allowance is a separate calculation from car, housing, education, relocation, etc. housing deduction is for those with self-employment income. you wouldn't be claiming it a a deduction if you're given a housing allowance because most likely, you're salaried.

the housing exclusion is for those with salaried income. housing exclusion is your housing allowance minus a base housing amount ($14,624 in 2009 and$14,016 in 2008). The difference between your allowance and the base amount is the housing amount excludable from income. also, it is bound on the upside by a limits based on where you're resident. for instance, higher limits are allowed for dubai (approx $57,174k in 2008). so if i spend entire 2008 tax year in dubai and am given a housing allowance of $80k. My housing amount is $80k - $14,016 = $65,984. However, the most I can exclude is the dubai limit of $57,174. The rest is taxable income of of $22,826 ($80k-$57,174). 

You must pass the bona fide residence or physical presence test to qualify for the housing exclusion/deduction.


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## NewExpat01 (Nov 26, 2009)

Thank you, that helps a lot. The housing exclusion is what I meant.

Is car allowance also a potential exclusion/deduction from income?

I'm looking to move at the beginning of 2010, so I should meet the physcial presence test for the 2010 tax filing. Just trying to work the math to ensure its worth it to make the move.


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## Bevdeforges (Nov 16, 2007)

You're correct in that all additional income has to be included in the income you declare. If you take the housing exclusion, you then can deduct your actual costs for rent, utilities (other than telephone), and the other housing related expenses mentioned in the instructions for form 2555.

The deductible housing costs are subject to limitations, based on where you are resident. But, check the instructions carefully. You can only deduct the cost of furniture you rent, not any that you buy, no costs for domestic labor or pay television. And I don't think your car costs are deductible at all (at least not as part of your housing expenses).

Basically, if you get a $30K housing allowance and actually spend it all on allowable deductible items, then it's a wash. But if you get a $30K allowance and only spend $25K of it on allowable items, you pay taxes on what's left. Similarly, if you have $35K in deductible housing items, you stand to gain tax-wise.
Cheers,
Bev


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## vincetruong (May 10, 2009)

*Allowance minus the base amount*



Bevdeforges said:


> You're correct in that all additional income has to be included in the income you declare. If you take the housing exclusion, you then can deduct your actual costs for rent, utilities (other than telephone), and the other housing related expenses mentioned in the instructions for form 2555.
> 
> The deductible housing costs are subject to limitations, based on where you are resident. But, check the instructions carefully. You can only deduct the cost of furniture you rent, not any that you buy, no costs for domestic labor or pay television. And I don't think your car costs are deductible at all (at least not as part of your housing expenses).
> 
> ...


What's considered "allowable deductible items" are things that fall under the foreign earned income exclusion and is a separate calculation from the housing exclusion. if they give you funds for housing then technically, it's treated as a housing allowance and you can only exclude what's left of the allowance after you subtract the base housing amount.

Car costs will indeed be part of your income which may or may not fall under the FEIE


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## vincetruong (May 10, 2009)

if you come at the beginning of the year then it'll be easier to meet the bona fide residence test than the physical presence test, insofar as with the bona fide, you're not limited to only 35 days in the US. with the bona fide, so long as you have foreign residence for a complete tax year (generally a calendar year), that is sufficient. With physical presence, it's any 12 months of the year with a max of 35 days in the US.


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