Foreign Housing Exclusion - Qualification

Qualification

In order to qualify, housing expenses must be reasonable expenses incurred by the expatriate or his spouse and dependents if they live together in a foreign country. An exception to this rule would be if a second foreign household is maintained for the spouse and dependents due certain adverse and unhealthful conditions such as warfare or civil unrest. As a result, qualified housing expenses for both the first and second foreign home would include the following:

• The fair rental value of housing provided by employer
• Utilities (except for telephone charges)
• Rent
• Repairs
• Real and personal property insurance
• Nonrefundable fees for securing a leasehold
• Nondeductible occupancy taxes
• Residential parking
• Rental of furniture and accessories

Outside of the above list, any other housing expenses are not considered qualified. In addition, the value of meals or lodging that is excluded from gross income will not be excludable for foreign housing exclusion purposes as this would be considered a double benefit. For example it would not include:

• Buying property
• Labor
• TV or Cable Bills
• Furniture
• Improvements that increase the value of the property

Keep in mind that you cannot include any expenses that you have excluded from gross income, there is no double benefit, in short. There is also a limit on the amount of housing expenses one can incur, usually around 30% of the FEI exclusion times the number of days in the qualifying period, usually about $27,450 a year. You can sometimes get more than this standard limit if you live in a high-cost locality, these limits can be found on Form 2555.