The IRS announced foreign housing costs eligible for 2013 foreign housing exclusion or deduction. American expats are aware that they can minimize US tax liability by claiming the foreign income exclusion, foreign housing exclusion and foreign tax credit (for overseas taxes paid). However, it is important to understand the type and amount of expenses eligible for foreign housing exclusion on US expat tax returns.
This is one of the latest emails from one of our clients, American expats living abroad. “I plan to work overseas in Moscow. The cost of living is quite high in this city. I heard about 2013 foreign housing exclusion. Which housing expenses can I deduct on US expat tax return on overseas taxes?”
Key overseas tax requirements in regards to 2013 foreign housing exclusion for American expats
What are Reasonable Foreign Housing Expenses?
We earlier discussed in details the housing expenses eligible for the housing exclusion. American expats must remember that these expenses cannot be lavish in nature. The housing expenses include the expenses incurred by a spouse and children who lived with an American expat during the year. The list of housing expenses includes rent, utilities, real and property insurance, residential parking etc.
What is Foreign Housing Expense Calculation?
American expats should be aware that the amount of housing expenses must exceed the “base housing amount”. The base housing amount in 2013 is $15,616 or 16% of the maximum amount of foreign income exclusion. The calculation is 16%x$97,600=$15,616. For many locations the maximum amount of 2013 foreign housing exclusion is 30% of foreign earned exclusion 30%x$97,600=$29,280. It means that most American expats can exclude only $29,280-$15,616=$13,664 as a housing exclusion. However, American expats must be aware that the maximum amount varies per a geographical location.
How much are Geographical allowances for foreign housing exclusion?
The IRS recognizes that the cost of living in many countries is much higher than $29,280. Consequently, the maximum ceiling amount is adjusted per a location. This is great news for many American expats living abroad. Some of the most expensive places in the world are listed below:
Country Location Maximum Amount of Housing Expenses (full year) in 2013
| Country | Location | Maximum Amount of Housing Expenses (full year) in 2013 |
| Angola | Luanda | $84,000 |
| Argentina | Buenos Aires | $56,500 |
| Australia | Perth | $47,700 |
| Bahamas, The | Nassau | $49,700 |
| Bahrain | Bahrain | $44,000 |
| Bermuda | Bermuda | $90,000 |
| Brazil | Sao Paulo | $56,600 |
| Canada | Montreal | $60,600 |
| Canada | Ottawa | $54,200 |
| Canada | Toronto | $56,200 |
| Chile | Santiago | $56,100 |
| China | Beijing | $71,200 |
| China | Hong Kong | $114,300 |
| Colombia | Bogota | $58,700 |
| France | Paris | $82,500 |
| Germany | Cologne | $56,200 |
| Germany | Munich | $57,000 |
| India | Mumbai | $67,920 |
| Italy | Milan | $82,100 |
| Japan | Tokyo | $117,100 |
| Korea | Seoul | $56,000 |
| Kuwait | Kuwait City | $64,400 |
| Mexico | Mexico City | $47,900 |
| Netherlands | Amsterdam | $52,900 |
| Netherlands | Hague, The | $65,500 |
| Norway | Oslo | $53,800 |
| Russia | Moscow | $108,000 |
| Spain | Madrid | $67,000 |
| Switzerland | Geneva | $98,300 |
| Thailand | Bangkok | $59,000 |
| United Kingdom | London | $88,200 |
Is it required to file a US expat tax return on overseas taxes to claim foreign housing expenses?
American expats must file a US expat tax return to claim foreign housing costs. If the IRS files a tax return for a taxpayer, the IRS prepares a basic tax return without taking into consideration any exclusion or deductions that Americans living overseas can be eligible for.
How much is Foreign Earned Income Exclusion in 2013?
The amount of foreign income exclusion has been increased to $97,600 in 2013. If an expatriate is eligible to claim a foreign earned income exclusion, then s/he can take foreign housing exclusion too. To learn more about the foreign income exclusion, please click here.
Conclusion
American expats are advised to keep a track of foreign housing expenses. Americans living abroad should contact an expat tax CPA if they have questions about foreign income exclusion, 2013 foreign housing exclusion, foreign tax credit, FBAR, FATCA, PFIC, foreign corporation and other overseas tax issues. International tax experts at Artio Partners will help you to file federal and state returns. To learn about our services, please contact us.