Foreign housing exclusion vs housing deduction

Two benefits, one pool of costs

Beyond the foreign earned income exclusion on your salary, the publication lets you reduce income for housing costs abroad. You can claim an exclusion, a deduction, or both, from gross income for your housing amount if your tax home is in a foreign country and you qualify 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 have no self-employment income, there is no housing deduction available to you.

The housing amount

Both benefits start from the same figure. Your housing amount is the total of your housing expenses for the year minus the base housing amount. Housing expenses are your reasonable expenses paid or incurred for housing in a foreign country for you and, if they live with you, your spouse and dependents, counted only for the part of the year you qualify. You must reduce the amount by any U.S. Government housing allowance or similar nontaxable allowance. You cannot count the value of meals or lodging you already excluded under the employer-premises rules, which the publication calls the no double benefit rule.

The base housing amount is tied to the maximum foreign earned income exclusion. It is 16% of the maximum annual exclusion amount for the specific tax year, or the daily amount (the maximum divided by 365, or 366 in a leap year) multiplied by the number of days in the qualifying period that fall within the tax year. The publication no longer prints the annual maximum in this edition, since it moved to a continuous-use revision and removed inflation-adjusted figures. This page therefore asks you for the daily base amount instead of hard-coding one; take it from the instructions to Form 2555 for your year.

There is also a cap. The standard limit on housing expenses is generally 30% of the maximum exclusion on a daily basis, multiplied by the qualifying days in the year, and higher limits apply in listed high-cost localities. Those limits are in the Form 2555 instructions.

The exclusion: employer-provided money

Employer-provided amounts include your salary, any reimbursement of housing costs, amounts your employer pays to a third party for you, the fair rental value of company housing not already excluded, tax equalization payments and education payments for dependents. If you have no self-employment income, all your earnings are employer-provided, so the entire housing amount is treated as paid with them and you can exclude it up to the limits. Your exclusion is the lesser of the housing amount paid for with employer-provided amounts or your foreign earned income. If you choose it, figure it before the exclusion on salary, and you cannot claim less than the full amount you are entitled to.

The deduction and the mixed case

If all your income is self-employment, you deduct the housing amount, subject to a limit, on line 24j of Schedule 1 (Form 1040). If you are both an employee and self-employed, you exclude the portion tied to wages and deduct the rest. The excludable part is your housing amount multiplied by your employer-provided amounts and divided by your foreign earned income.

The publication's example: housing amount $18,000, total foreign earned income $100,000, half ($50,000) from self-employment and half from employment. Half of the housing amount is employer provided, so $9,000 is excluded and the other $9,000 is deducted, subject to the limit. To see the same split in the calculator, enter 18000 as expenses, leave the base amount and days at zero, and enter 50000 and 100000 in the last two boxes. The deduction cannot exceed foreign earned income minus the sum of your foreign earned income exclusion and housing exclusion, and an amount disallowed by that limit can be carried over to the next year only.

The couple example, reproduced

Tom and Jane live together and file jointly. They compute the housing amount jointly. Tom has $10,000 of housing expenses, $7,500 of them from September 15 to year end, and Jane has $3,000, all in her period of residence. If Tom claims the exclusion, expenses are $13,000 and the base amount, using Tom's 137 days at $56.60 a day, is $7,754, so the housing amount is $5,246. If Jane claims it, expenses are limited to $10,500 and the base, using her 108 days, is $6,113, so the housing amount is $4,387. Enter 13000, 56.60 and 137 above, then 10500, 56.60 and 108, to get both results. The $56.60 daily figure is the one printed in the publication's example for that year; it is not a current-year figure.

The publication's tip for spouses who live together and file jointly is that each uses a full base amount in the calculation, so allocating all housing expenses to one spouse and computing amounts separately may be advantageous. Spouses living apart in different tax homes may each claim.

Where this sits

Choosing the housing exclusion follows the same rules as choosing the earned income exclusion, so a revocation of one is a separate act from revoking the other. See the page on revoking the exclusion. To confirm you qualify in the first place, use the 330-day physical presence calculator or read about the bona fide residence test.

Sources

• IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad (12/2025): Chapter 4: Foreign Housing Exclusion and Deduction; Housing Amount; Foreign Housing Exclusion; Foreign Housing Deduction; Married Couples. Read November 2, 2026.

Edition read: Publication 54 (12/2025), Tax Guide for U.S. Citizens and Resident Aliens Abroad. This edition is a continuous-use revision and no longer prints annual inflation-adjusted amounts such as the maximum exclusion; dollar figures on this page are the ones printed in the publication's own examples. Check the current publication, Form 2555 instructions and form instructions for your tax year. This page summarizes the publication and does not replace it.