What Is the Foreign Housing Exclusion?
The Foreign Housing Exclusion is a US income tax relief under which qualifying citizens and residents abroad exclude employer-funded housing costs above a base amount.
Also known as: Foreign Housing Deduction, Section 911 Housing Exclusion.
How Foreign Housing Exclusion works
The Foreign Housing Exclusion is available to individuals who qualify for the Foreign Earned Income Exclusion through a foreign tax home and the bona fide residence or physical presence test, and covers reasonable housing expenses in a foreign country paid with employer-provided amounts. Qualifying costs above a base housing amount, set at 16 percent of the maximum foreign earned income exclusion prorated per day, are excluded up to a location-based limit published in the Form 2555 instructions. Self-employed individuals use the parallel foreign housing deduction instead, and qualifying housing amounts cannot exceed total foreign earned income for the year.
Foreign Housing Exclusion vs Foreign Earned Income Exclusion
Unlike the Foreign Earned Income Exclusion, which removes capped earned income, the Foreign Housing Exclusion removes only qualifying housing costs above a base amount, and can be claimed in addition to the earned income exclusion.
Example
Illustrative example: A United States citizen employed by a company in Country A meets the physical presence test and pays rent and utilities in an expensive city. The employee generally claims the earned income exclusion and the Foreign Housing Exclusion on Form 2555, excluding housing costs above the base amount up to the city's limit.
Common misconception
Myth: Freelancers abroad can claim the foreign housing exclusion just like employees.
Reality: The Foreign Housing Exclusion applies to employer-provided amounts, while self-employed individuals use the foreign housing deduction, which follows similar limits but works as a deduction.
Frequently asked questions
Can self-employed people claim the foreign housing exclusion?
The Foreign Housing Exclusion covers housing paid with employer-provided amounts; self-employed individuals instead claim the foreign housing deduction for housing paid with self-employment earnings, subject to the same base amount and location limits.
What housing expenses qualify for the foreign housing exclusion?
The Foreign Housing Exclusion covers reasonable housing expenses paid or incurred abroad, such as rent and utilities, while lavish or extravagant expenses are excluded; the IRS Form 2555 instructions set the detailed list and limits.
Related terms
- Foreign Earned Income Exclusion — Prerequisite relief often confused with housing exclusion
- Physical Presence Test — Qualifying test shared with the earned income exclusion
- Bona Fide Residence Test — Alternative qualifying test for housing relief
- Tax Home — Must be located in a foreign country
Related guides
- Global tax reform and US digital nomads — US tax context for Americans abroad
- Business expenses guide for nomads — Expense treatment for self-employed nomads
Sources
Last verified: 2026-10-08. This entry is general information, not tax or legal advice; rules vary by country and change over time.
