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Living Expenses Are Through the Roof – How to Deduct More Than 30% Allowance for Housing Exclusion & Reduce Tax Bill

What is the housing exclusion?

If you qualify for the Foreign Earned Income Exclusion (FEIE), calculated through form 2555 on your tax return, you can also claim exclusion from gross income of your housing costs. In practice, what this means is that you can exclude far more than the $100k allocated to FEIE from your income, reducing your tax bill. Given that European living expenses have grown tremendously – this is key for those required to file a U.S tax return while living abroad.

What kind of costs qualify?

“Reasonable” expenses paid or incurred for housing outside of the U.S for you, your spouse and your dependents (assuming they lived with you). If you only qualify for FEIE for part of the year, then only the housing expenses for that part of the year are counted.

If you pay a broker fee, this is a reasonable expense. The cost of residential parking is a reasonable expense. But – if you choose to spend 3 months in the Ritz in Paris while looking for apartments and hanging at the Hemingway Bar, this is not reasonable.

Whole Story at TFX.

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