Foreign Housing Exclusion and Deduction

Posted in Finance, Accounting and Economics Terms, Total Reads: 714
Advertisements

Definition: Foreign Housing Exclusion and Deduction

Foreign housing exclusion and deduction is a US tax-exemption provision allowed by section 911 (a) of the federal tax code. While a person residing in the US has to pay tax for all the normal components of income, a person residing and working outside the US may qualify to exclude the cost of his/her housing from the gross income before application of any tax.

There is a subtle difference between ‘housing exclusion’ and ‘housing deduction’. Under housing exclusion, one can exclude the housing cost paid by himself/herself or by the employer on his/her behalf. However, under housing deduction, housing cost paid by self-employment earnings only qualify.

 

Criteria for qualification:

  1. The person must have filed a US federal income tax return, reporting income earned abroad.
  2. He/she person must be a US citizen or a resident alien (for federal taxation).
  3. The individual must possess a tax home in a foreign country.
  4. He/she must pass the bona fide residence test or the physical presence test.

 

Foreign housing cost amount (FHCA):

FHCA = Total foreign housing expenses (FHE) – Base housing amount (BHA),

where,

FHE = reasonable expenses actually paid by the individual for housing of himself/herself, his/her spouse and dependants in the taxable year,

BHA = 16% of the maximum foreign earned income exclusion (MFIE) for that year.


Example:

Say for year 2010, for a foreign working individual,

FHE = $50,000 and MFIE = $100,000.

Then, BHA = 16% of $100,000, i.e. $16,000.

Hence, FHCA = FHE – BHA = $(50,000 – 16,000) = $34,000.

This is the amount the individual can exclude from his gross income.

 

Search & Explore : Management Dictionary

Browse definitions and meaning of more concepts and terms similar to Foreign Housing Exclusion and Deduction. The Management Dictionary covers definitions and overview of over 7000 business concepts from 6 categories.

Advertisements



Share this Page on:

Similar Definitions from same Category: