Dwelling overseas might be an journey—new tradition, new espresso, new hire receipts. However if you happen to’re a U.S. taxpayer abroad, there’s one perk you don’t need to miss: the Overseas Housing Exclusion.
The Overseas Housing Exclusion (FHE) permits certified expats to deduct sure housing prices from their taxable earnings—on high of the Overseas Earned Earnings Exclusion. Which means a decrease U.S. tax invoice and extra room in your price range for issues like hire, utilities, and probably the world’s strongest Wi-Fi plan.
To assert it, you’ll want to know key components like your tax residence, certified housing bills, and the bottom housing quantity the IRS expects you to cowl out of pocket. Let’s break it down—and assist you to maintain extra of your cash whereas residing your finest expat life.
📋 Key Updates for 2026
- The Overseas Earned Earnings Exclusion has elevated to $132,900, permitting expats to exclude extra earnings from U.S. tax.
- The bottom housing quantity stays 16% of the FEIE, which now equals $21,264—lowering how a lot housing you may exclude.
- Slight bracket shifts attributable to inflation might decrease your general tax legal responsibility, particularly if you happen to’re combining the FHE with different expat tax advantages.
What’s the Overseas Housing Exclusion?
The Overseas Housing Exclusion (FHE) is a useful tax break that lets qualifying U.S. expats cut back their gross earnings by excluding sure international housing prices—like hire and utilities—from their U.S. tax return.
It really works alongside the Overseas Earned Earnings Exclusion (FEIE), which permits expats to exclude as much as $132,900 (for 2026) of foreign-earned earnings. The FHE provides you much more room to decrease your earnings tax invoice in case your residing bills overseas are excessive.
To qualify, you need to:
The quantity you may exclude is calculated by subtracting a base housing quantity (set by the IRS) out of your precise bills, as much as a most quantity that relies on your location. For instance, expats in high-cost cities like London or Hong Kong could also be eligible for a a lot greater exclusion than these residing in lower-cost areas.
You’ll declare the exclusion utilizing IRS Kind 2555, which covers each the FEIE and the FHE. Used strategically, the FHE can considerably cut back your taxable earnings—and function another reason to not miss submitting your expat return on time.
💡 Professional Tip:
The FHE solely applies to earnings earned as an worker—not self-employment earnings. Should you’re self-employed, you should still have the ability to declare the international housing deduction as a substitute.
Who qualifies for the Overseas Housing Exclusion?
To qualify for the Overseas Housing Exclusion, you want to meet a couple of IRS guidelines which can be particular to expats residing and dealing overseas. Right here’s what it takes:
- Your tax residence have to be in another country. This implies your principal workplace—not simply the place you sleep at night time—have to be outdoors the U.S.
- You need to cross one among two residency checks: The Bona Fide Residence Check (resident of a international nation for a full tax yr) or the Bodily Presence Check (current in another country for no less than 330 full days in a 12-month interval).
- You need to have earned earnings overseas and paid for certified housing bills out of pocket.
- You have to be a U.S. citizen or a qualifying resident alien.
Should you meet these standards, you could possibly exclude a part of your gross earnings utilizing the FHE—particularly in case your housing prices exceed the bottom quantity and also you qualify for the utmost international earned earnings exclusion.
💡 Professional Tip:
To assert the exclusion, your housing prices should align with the IRS’s definition of “cheap bills”—and the clock begins ticking as quickly as you meet the residency check.
What counts as international housing bills?
Not each expense qualifies—however the IRS does enable a spread of widespread housing prices to be excluded out of your taxable earnings if you happen to meet the eligibility guidelines.
Certified international housing bills embrace:
- Lease paid to your main residence overseas
- Utilities (excluding phone payments)
- Property insurance coverage
- Charges for residential parking
- Cheap prices for furnishings, residential repairs, and home labor (like a nanny)
What doesn’t depend:
Lavish or extravagant housing prices, shopping for a house, mortgage curiosity, or capital enhancements. The IRS is beneficiant, however not that beneficiant.
Employer-provided housing:
In case your employer pays for half (or all) of your housing, that quantity reduces what you may exclude. Solely out-of-pocket bills can be utilized towards the exclusion.
💡 Professional Tip:
The IRS units a base housing quantity (16% of the Overseas Earned Earnings Exclusion), and limits differ by location. Excessive-cost cities like London, Singapore, or Tokyo might enable for a better most exclusion—so your metropolis issues.
calculate your Overseas Housing Exclusion
The Overseas Housing Exclusion isn’t a flat quantity—it’s calculated primarily based on how a lot you spend and the place you reside. Right here’s how to determine what you may declare:
Step 1: Add up your certified housing bills
Embody hire, utilities (besides telephone), property insurance coverage, and different cheap housing prices you paid out-of-pocket.
Step 2: Establish your base housing quantity
The IRS subtracts a “base” quantity out of your complete earlier than permitting any exclusion. In 2026, this base quantity is:
- $21,264 per yr (16% of the $132,900 FEIE)
- Or about $58.26 per day if you happen to didn’t reside overseas all the yr
Step 3: Know the utmost you may declare
The IRS units a typical cap of $39,870 per yr (30% of the FEIE), although this may be greater if you happen to reside in a delegated high-cost metropolis.
Step 4: Subtract the bottom out of your precise bills
No matter’s left after subtracting the bottom is your eligible exclusion—as much as the IRS restrict to your location.
For instance:
Let’s say you spent $40,000 on eligible housing in 2026. Your base housing quantity is $21,264, so you may doubtlessly exclude:
$40,000 – $21,264 = $18,736.
Since that is underneath the usual cap, you may exclude the complete $18,736.
Step 5: File Kind 2555 to say it
You’ll use IRS Kind 2555 alongside together with your Kind 1040 to formally declare the Overseas Housing Exclusion.
Further Concerns for the FHE Exclusion
Earlier than you finalize your housing exclusion calculation, listed below are a couple of key particulars that might affect your tax scenario—particularly if you happen to’re married, have children, or are utilizing different expat tax methods.
1. Married {couples} and twin earners
Should you’re submitting collectively and each spouses meet the residency necessities and have earned earnings, every of it’s possible you’ll qualify for the FEIE and the housing exclusion individually. This will considerably enhance the whole quantity excluded out of your taxable earnings.
Nevertheless, every partner should qualify independently—and you can not declare the identical housing bills twice. In different phrases, no double-dipping: shared housing prices can solely be claimed as soon as between you.
2. Dependents
Whereas dependents don’t have an effect on your housing exclusion instantly, they’ll affect your general tax invoice. It’s possible you’ll qualify for the Youngster Tax Credit score, Further Youngster Tax Credit score, or different dependent-related advantages.
3. Interplay with different tax methods
You’ll be able to’t apply each the Overseas Tax Credit score (Kind 1116) and the Overseas Housing Exclusion to the identical earnings. It’s vital to calculate which mixture provides you one of the best tax end result.
And a fast heads-up for the self-employed: neither the FEIE nor the FHE reduces self-employment tax. Until you’re lined by a totalization settlement together with your host nation, you’ll nonetheless owe 15.3% on internet earnings.
💡 Professional Tip:
Should you’re juggling housing exclusions, foreign-earned earnings, and tax credit, the technique can get complicated quick. However used appropriately, these exclusions can slash your U.S. tax invoice—particularly in high-cost international locations.
declare the exclusion in your tax return
To assert the Overseas Housing Exclusion, you’ll have to file IRS Kind 2555 alongside your federal tax return (Kind 1040). This type calculates each your Overseas Earned Earnings Exclusion (FEIE) and your housing exclusion quantity—and sure, it’s definitely worth the effort.
Right here’s learn how to do it:
Step 1: Decide your tax residence and residency standing
You need to verify your tax house is in another country and that you just meet both the Bona Fide Residence Check (you lived overseas for a complete tax yr) or the Bodily Presence Check (you had been in another country for no less than 330 full days in a 12-month interval). You’ll want to incorporate your qualifying dates on Kind 2555.
Step 2: Calculate your complete international earned earnings
This contains wage, self-employment earnings, and different compensation earned whereas residing overseas. Hold correct information, particularly in case your earnings contains employer-provided quantities or bonuses.
Step 3: Observe your housing bills
You’ll want documentation displaying certified international housing prices—issues like hire, utilities (excluding telephone), property insurance coverage, and primary family furnishings. Hold receipts or statements for each expense.
Step 4: Full Kind 2555
Report your complete international earned earnings, the variety of qualifying days, and your international housing prices. The shape will calculate the exclusion quantity you may apply to scale back your taxable earnings.
Step 5: File your return
Connect Kind 2555 to your federal earnings tax return (Kind 1040) and submit it by the tax deadline. Should you’re overseas on April 15, you get an computerized extension till June 15, however taxes owed are nonetheless due by April 15. You can even request an extra extension to October 15 if wanted.
💡 Professional Tip:
Should you’re combining the FHE with different methods—just like the Overseas Tax Credit score—double-check that you just’re not making use of each to the identical earnings. And if you happen to’re self-employed, keep in mind: the exclusion reduces earnings tax, however not self-employment tax.
When do you have to take into account the Overseas Housing Deduction as a substitute?
Whereas the Overseas Housing Exclusion is designed for workers working overseas, self-employed expats might qualify for the Overseas Housing Deduction—an identical however barely totally different tax profit underneath Kind 2555.
This deduction means that you can subtract eligible housing bills out of your gross earnings, moderately than excluding it fully such as you would with the FHE. That may be useful in sure conditions, particularly if:
- You’re self-employed and your housing prices are excessive relative to your earnings.
- You don’t qualify for the complete Overseas Earned Earnings Exclusion attributable to low earnings or restricted qualifying days.
- You’re residing in a high-cost location and your housing bills exceed the usual exclusion limits.
To qualify, you need to:
- Have a tax residence in another country
- Meet both the bona fide residence check or the bodily presence check
- Not have any employer-provided housing advantages (or account for them correctly)
Nonetheless undecided which is true to your scenario? Evaluating each choices—or operating the numbers in a tax planning instrument—can reveal which supplies the better tax profit to your distinctive expat setup.
Frequent submitting errors and learn how to keep away from them
The Overseas Housing Exclusion can prevent 1000’s, however provided that you calculate and report it appropriately. Listed here are a couple of errors that journey up even seasoned expats:
- Forgetting the bottom housing quantity: The exclusion solely covers qualifying bills above the bottom, not the complete quantity. Lacking this step means overstating your exclusion—and risking IRS scrutiny.
- Misreporting housing bills: Not all the pieces counts. Bills like cable TV, phone payments, or luxurious lodging don’t qualify. Solely cheap prices like hire, utilities, and property insurance coverage must be included.
- Utilizing incorrect trade charges: All quantities have to be transformed to USD. Utilizing inconsistent or outdated trade charges—particularly if you happen to paid bills in a number of currencies—may cause reporting errors.
- Submitting Kind 2555 incorrectly: Incomplete or inaccurate data (like dates that don’t line up with the bodily presence check) can delay processing or result in disqualification. Double-check each part—particularly residency dates and expense totals.
💡 Professional Tip:
Hold all receipts, lease agreements, and utility information useful. They’re not submitted together with your return, but when the IRS ever asks questions, you’ll be glad you saved them.
Flip housing prices into tax financial savings
Should you’re residing overseas and paying out of pocket for housing, the Overseas Housing Exclusion might considerably decrease your U.S. tax invoice. When mixed with the Overseas Earned Earnings Exclusion, it’s some of the highly effective instruments within the expat tax toolkit.
The important thing? Correct submitting. Understanding what counts, monitoring your bills, and avoiding widespread errors ensures you get each greenback of tax aid you’re entitled to—whereas staying absolutely compliant with IRS guidelines.
Need assistance getting it proper? Shiny!Tax makes a speciality of U.S. tax submitting for Individuals overseas. Our professional CPAs know the ins and outs of expat tax guidelines (together with the finer factors of the FHE), and we’re right here that will help you file with confidence.
Continuously Requested Questions
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Do all American expats qualify for the Overseas Housing Exclusion?
No. To qualify, American expats should have a tax residence in another country and cross both the bodily presence check (330 full days overseas) or the bona fide residence check (full calendar yr in another country). Eligibility additionally relies on having foreign-earned earnings and certified housing bills.
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How does the Overseas Housing Exclusion cut back my tax legal responsibility?
The exclusion lowers your tax legal responsibility by permitting you to subtract sure international housing bills out of your gross earnings—on high of the Overseas Earned Earnings Exclusion. It’s particularly useful for expatriates residing in high-cost cities.
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Can self-employed people use the Overseas Housing Exclusion?
Sure, self-employed people can declare the exclusion. However have in mind: it doesn’t cut back self-employment tax—solely earnings tax. You may additionally take into account the Overseas Housing Deduction as a substitute, relying in your earnings.
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How do I declare the exclusion, and what types do I would like?
Use IRS Kind 2555 to say the Overseas Housing Exclusion. You’ll have to doc your variety of days overseas and housing bills, and decide whether or not you qualify as a bona fide resident of a international nation. A very good tax information or working with an expat tax service may help keep away from errors.
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When ought to I think about using tax companies for assist?
Should you’re uncertain about eligibility, juggling a number of earnings sources, or coordinating with the Overseas Tax Credit score, it’s sensible to hunt professional assist. Respected tax companies for U.S. expat tax—like Shiny!Tax—can guarantee your submitting is correct and optimized for max financial savings.
