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Publication 54

Foreign Housing
Exclusion and

In addition to the foreign earned income exclusion, you also can 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. The housing deduction applies only to amounts paid for with self-employment earnings.
If you are married and you and your spouse each qualifies under one of the tests, see Married Couples, later.

Housing Amount(p21)

Your housing amount is the total of your housing expenses for the year minus the base housing amount.

Base housing amount.(p21)

The computation of the base housing amount (line 32 of Form 2555) is tied to the maximum foreign earned income exclusion. The amount is 16% of the exclusion amount (computed on a daily basis), multiplied by the number of days in your qualifying period that fall within your tax year.
For 2012, the maximum foreign earned income exclusion is $95,100 per year; 16% of this amount is $15,216, or $41.57 per day. To figure your base housing amount if you are a calendar-year taxpayer, multiply $41.57 by the number of your qualifying days during 2012. (See Part-year exclusion under Limit on Excludable Amount, earlier.) Subtract the result from your total housing expenses (up to the applicable limit) to find your housing amount.


Your qualifying period includes all of 2012. During the year, you spent $17,152 for your housing. This is below the limit for the location in which you incurred the expenses. Your housing amount is $17,152 minus $15,216, or $1,936.

U.S. Government allowance.(p21)

You must reduce your housing amount by any U.S. Government allowance or similar nontaxable allowance intended to compensate you or your spouse for the expenses of housing during the period for which you claim a foreign housing exclusion or deduction.

Housing expenses.(p21)

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.
Housing expenses include:
Housing expenses do not include:
No double benefit. You cannot include in housing expenses the value of meals or lodging that you exclude from gross income (see Exclusion of Meals and Lodging, earlier) or that you deduct as moving expenses.
Limit on housing expenses.(p21)
The amount of qualified housing expenses eligible for the housing exclusion and housing deduction is limited. The limit is generally 30% of the maximum foreign earned income exclusion (computed on a daily basis), multiplied by the number of days in your qualifying period that fall within your tax year. For 2012, this is generally $77.95 per day ($28,530 per year). However, the limit will vary depending upon the location of your foreign tax home.
A qualified individual incurring housing expenses in a high-cost locality during 2012 can use housing expenses that total more than the standard limit on housing expenses ($28,530) to determine the housing amount. An individual who does not incur housing expenses in a high-cost locality is limited to maximum housing expenses of $77.95 per day ($28,530 per year).
The limits for high-cost localities are listed in the Instructions for Form 2555.
Second foreign household.(p21)
Ordinarily, if you maintain two foreign households, your reasonable foreign housing expenses include only costs for the household that bears the closer relationship (not necessarily geographic) to your tax home. However, if you maintain a second, separate household outside the United States for your spouse or dependents because living conditions near your tax home are dangerous, unhealthful, or otherwise adverse, include the expenses for the second household in your reasonable foreign housing expenses. You cannot include expenses for more than one second foreign household at the same time.
If you maintain two households and you exclude the value of one because it is provided by your employer, you can still include the expenses for the second household in figuring a foreign housing exclusion or deduction.
Adverse living conditions include:

Foreign Housing Exclusion(p22)

If you do not have self-employment income, all of your earnings are employer-provided amounts and your entire housing amount is considered paid for with those employer-provided amounts. This means that you can exclude (up to the limits) your entire housing amount.

Employer-provided amounts.(p22)

These include any amounts paid to you or paid or incurred on your behalf by your employer that are taxable foreign earned income (without regard to the foreign earned income exclusion) to you for the year. Employer-provided amounts include:

Choosing the exclusion.(p22)

You can choose the housing exclusion by completing the appropriate parts of Form 2555. You cannot use Form 2555-EZ to claim the housing exclusion. Otherwise, the rules about choosing the exclusion under Foreign Earned Income Exclusion also apply to the foreign housing exclusion.
Your housing exclusion is the lesser of: If you choose the housing exclusion, you must figure it before figuring your foreign earned income exclusion. You cannot claim less than the full amount of the housing exclusion to which you are entitled.
Figuring tax on income not excluded.(p22)
If you claim the housing exclusion, the foreign earned income exclusion (discussed earlier), or both, you must figure the tax on your nonexcluded income using the tax rates that would have applied had you not claimed the exclusions. See the instructions for Form 1040 and complete the Foreign Earned Income Tax Worksheet to figure the amount of tax to enter on Form 1040, line 44. If you must attach Form 6251 to your return, use the Foreign Earned Income Tax Worksheet provided in the instructions for Form 6251.

Foreign tax credit or deduction.(p22)

Once you choose to exclude foreign housing amounts, you cannot take a foreign tax credit or deduction for taxes on income you can exclude. If you do take a credit or deduction for any of those taxes, your choice to exclude housing amounts may be considered revoked. See Publication 514 for more information.

Earned income credit.(p22)

If you claim the foreign housing exclusion, you will not qualify for the earned income credit for the year.

Foreign Housing Deduction(p22)

If you do not have self-employment income, you cannot take a foreign housing deduction.
How you figure your housing deduction depends on whether you have only self-employ-
ment income or both self-employment income and employer-provided income. In either case, the amount you can deduct is subject to the limit described later.

Self-employed — no employer-provided amounts.(p22)

If none of your housing amount is considered paid for with employer-provided amounts, such as when all of your income is from self-employment, you can deduct your housing amount, subject to the limit described later.
Take the deduction by including it in the total on line 36 of Form 1040. On the dotted line next to line 36, enter the amount and write "Form 2555."

Self-employed and employer-provided amounts.(p22)

If you are both an employee and a self-employed individual during the year, you can deduct part of your housing amount and exclude part of it. To find the part that you can exclude, multiply your housing amount by the employer-provided amounts (discussed earlier) and then divide the result by your foreign earned income. This is the amount you can use to figure your foreign housing exclusion. You can deduct the balance of the housing amount, subject to the limit described later.


Your housing amount for the year is $12,000. During the year, your total foreign earned income is $80,000, of which half ($40,000) is from self-employment and half is from your services as an employee. Half of your housing amount ($12,000 ÷ 2) is considered provided by your employer. You can exclude $6,000 as a housing exclusion. You can deduct the remaining $6,000 as a housing deduction subject to the following limit.


Your housing deduction cannot be more than your foreign earned income minus the total of:


You can carry over to the next year any part of your housing deduction that is not allowed because of the limit. You are allowed to carry over your excess housing deduction to the next year only. If you cannot deduct it in the next year, you cannot carry it over to any other year. You deduct the carryover in figuring adjusted gross income. The amount of carryover you can deduct is limited to your foreign earned income for the year of the carryover minus the total of your foreign earned income exclusion, housing exclusion, and housing deduction for that year.

Married Couples(p22)

If both you and your spouse qualify for the foreign housing exclusion or the foreign housing deduction, how you figure the benefits depends on whether you maintain separate households.

Separate Households(p22)

If you and your spouse live apart and maintain separate households, you both may be able to claim the foreign housing exclusion or the foreign housing deduction. You both can claim the exclusion or the deduction if both of the following conditions are met.

Housing exclusion.(p22)

Each spouse claiming a housing exclusion must figure separately the part of the housing amount that is attributable to employer-provided amounts, based on his or her separate foreign earned income.

One Household(p22)

If you and your spouse lived in the same foreign household and file a joint return, you must figure your housing amounts jointly. If you file separate returns, only one spouse can claim the housing exclusion or deduction.
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.


Tom and Jane live together and file a joint return. Tom was a bona fide resident of and had his tax home in Ghana from August 17, 2012, through December 31, 2013. Jane was a bona fide resident of and had her tax home in Ghana from September 15, 2012, through December 31, 2013.
During 2012, Tom received $75,000 of foreign earned income and Jane received $50,000 of foreign earned income. Tom paid $10,000 for housing expenses, of which $7,500 was for expenses incurred from September 15 through the end of the year. Jane paid $3,000 for housing expenses in 2012, all of which were incurred during her period of residence in Ghana.
Tom and Jane figure their housing amount jointly. If Tom claims the housing exclusion, their housing expenses would be $13,000 and their base housing amount, using Tom's 2012 period of residence (Aug. 17 – Dec. 31, 2012), would be $5,695 ($41.57 × 137 days). Tom's housing amount would be $7,305 ($13,000 – $5,695). If, instead, Jane claims the housing exclusion, their housing expenses would be limited to $10,500 ($7,500 + $3,000) and their base housing amount, using Jane's period of residence (Sept. 15 – Dec. 31, 2012), would be $4,490 ($41.57 × 108 days). Jane's housing amount would be $6,010 ($10,500 – $4,490).