Tax Guide, Americans Abroad
Housing Exclusion or Deduction

In addition to the foreign earned income exclusion, you can also claim an exclusion or a deduction from gross income for your housing amount if your tax home is in a foreign country and you qualify for the exclusions and deduction under either the bona fide residence test or the physical presence test.

The 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).

The housing deduction applies only to amounts paid for with self-employment earnings.

Housing expenses. Housing expenses include your reasonable expenses paid or incurred for housing in a foreign country for you and (if they live with you) for your spouse and dependents. Consider only housing expenses for the part of the year that you qualify for the foreign earned income exclusion. The amount you can deduct is limited based on location and other factors.

Housing expenses include:

• Rent, The fair rental value of housing provided in kind by your employer,

• Repairs,

• Utilities (other than telephone charges),

• Real and personal property insurance,

• Nondeductible occupancy taxes,

• Nonrefundable fees for securing a leasehold,

• Rental of furniture and accessories,

• Residential parking.

Housing expenses do not include:

• You can’t include in housing expenses the value of meals or lodging that you exclude from gross income (for example, if you claim a home office deduction, you cannot also claim the same rent for a housing deduction).

• Expenses that are lavish or extravagant under the circumstances,

• Deductible interest and taxes (including deductible interest and taxes of a tenant-stockholder in a cooperative housing corporation),

• The cost of buying property, including principal payments on a mortgage,

• The cost of domestic labor (maids, gardeners, etc.),

• Pay television subscriptions,

• Improvements and other expenses that increase the value or appreciably prolong the life of property,

• Purchased furniture or accessories, or

• Depreciation or amortization of property or improvements.

You can’t take the additional child tax credit if you claim the foreign housing exclusion.

Married couples filing jointly:

In figuring your housing amount jointly, you can combine your housing expenses and figure one base housing amount. Either spouse (but not both) can claim the housing exclusion or housing deduction. However, if you and your spouse have different periods of residence or presence and the one with the shorter period of residence or presence claims the exclusion or deduction, you can claim as housing expenses only the expenses for that shorter period.

Sources:

https://www.irs.gov/individuals/international-taxpayers/foreign-housing-exclusion-or-deduction

https://www.irs.gov/pub/irs-pdf/p54.pdf