Foreign Housing Exclusion and Deduction: Taxes for Americans Abroad (2025 IRS Guide)
This guide covers “Foreign Housing Exclusion and Deduction” within taxes for americans abroad. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.
Adapted from Publication 54 (12/2025), Tax Guide for U.S. Citizens and Resident Aliens Abroad, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.
Context for these rules
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Requirements for the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction,
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How to determine the amount of the foreign earned income exclusion,
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How to determine the amount of the foreign housing exclusion and the foreign housing deduction,
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Effect of making valid exclusions and taking the deduction, and
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Effect of revocation of exclusions.
Publication
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514 Foreign Tax Credit for Individuals
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516 U.S. Government Civilian Employees Stationed Abroad
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519 U.S. Tax Guide for Aliens
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570 Tax Guide for Individuals With Income From U.S. Territories
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596 Earned Income Credit (EIC)
Form (and Instructions)
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1040-X Amended U.S. Individual Income Tax Return
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2555 Foreign Earned Income
See chapter 7 for information about getting these publications and forms.
Foreign Housing Exclusion and Deduction
In addition to the foreign earned income exclusion, you can also claim an exclusion and/or a deduction from gross income for your housing amount if your tax home is in a foreign country and you qualify for the exclusions and deduction 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 are married and you and your spouse each qualifies under one of the tests, see Married Couples, later.
Housing Amount
Your housing amount is the total of your housing expenses for the year minus the base housing amount.
Base housing amount.
The computation of the base housing amount is tied to the maximum foreign earned income exclusion. That amount is 16% of the maximum annual exclusion amount allowed for the specific tax year, or the daily amount (maximum annual exclusion amount allowed, divided by 365 days, or 366 days for leap years), multiplied by the number of days in your qualifying period that fall within your tax year.
See the Limit on Housing Expenses Worksheet in Part IV of the Instructions for Form 2555.
U.S. Government allowance.
You must reduce your housing amount by any U.S. Government allowance or similar nontaxable allowance intended to compensate you or your spouse for the expenses of housing during the period for which you claim a foreign housing exclusion or deduction.
Exclusion of meals and lodging.
You don’t include in your income the value of meals and lodging provided to you and your family by your employer at no charge if the following conditions are met.
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The meals are furnished:
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On the business premises of your employer, and
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For the convenience of your employer.
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The lodging is furnished:
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On the business premises of your employer,
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For the convenience of your employer, and
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As a condition of your employment.
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If these conditions are met, don’t include the value of the meals or lodging in your income, even if a law or your employment contract says that they are provided as compensation.
Amounts you don’t include in income because of these rules aren’t foreign earned income.
If you receive a Form W-2, excludable amounts shouldn’t be included in the total reported in box 1 as wages.
Housing expenses.
Housing expenses include your reasonable expenses paid or incurred for housing in a foreign country for you and (if they live with you) for your spouse and dependents.
Consider only housing expenses for the part of the year that you qualify for the foreign earned income exclusion. For a list of eligible housing expenses, see Part VI of the Instructions for Form 2555.
Caution:
No double benefit. You can’t include in housing expenses the value of meals or lodging that you exclude from gross income (see Exclusion of meals and lodging , earlier).
Limit on housing expenses.
The amount of qualified housing expenses eligible for the housing exclusion and housing deduction is limited. The standard limit is generally 30% of the maximum foreign earned income exclusion (computed on a daily basis), multiplied by the number of days in your qualifying period that fall within your tax year. However, the limit will vary depending upon the location of your foreign tax home.
A qualified individual incurring housing expenses in a high-cost locality during a specific tax year can use housing expenses that total more than the standard limit on housing expenses to determine the housing amount. An individual who does not incur housing expenses in a high-cost locality is limited to the standard limit.
The limits for high-cost localities are listed in the Instructions for Form 2555.
Tip:
You can elect to apply the current year housing cost limits to figure your prior year housing exclusion instead of using the prior year limits. The IRS and the Department of the Treasury anticipate that you will be able to elect to apply the subsequent year limits to figure your current year housing exclusion instead of using the current year limits.
Second foreign household.
Ordinarily, if you maintain two foreign households, your reasonable foreign housing expenses include only costs for the household that bears the closer relationship (not necessarily geographic) to your tax home. However, if you maintain a second, separate household outside the United States for your spouse or dependents because living conditions near your tax home are dangerous, unhealthful, or otherwise adverse, include the expenses for the second household in your reasonable foreign housing expenses. You can’t include expenses for more than one second foreign household at the same time. For details, see the Instructions for Form 2555.
Foreign Housing Exclusion
If you do not have self-employment income, all of your earnings are employer-provided amounts and your entire housing amount is considered paid for with those employer-provided amounts. This means that you can exclude (up to the limits) your entire housing amount.
Employer-provided amounts.
These include any amounts paid to you or paid or incurred on your behalf by your employer that are taxable foreign earned income (without regard to the foreign earned income exclusion) to you for the year. Employer-provided amounts include:
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Your salary,
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Any reimbursement for housing expenses,
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Amounts your employer pays to a third party on your behalf,
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The fair rental value of company-owned housing furnished to you unless that value is excluded under the rules explained earlier under exclusion of meals and lodging,
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Amounts paid to you by your employer as part of a tax equalization plan, and
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Amounts paid to you or a third party by your employer for the education of your dependents.
Choosing the exclusion.
You can choose the foreign housing exclusion by completing the appropriate parts of Form 2555. Rules about choosing the foreign earned income exclusion also apply to the foreign housing exclusion.
Your foreign housing exclusion is the lesser of:
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That part of your housing amount paid for with employer-provided amounts, or
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Your foreign earned income.
Foreign Housing Deduction
If you don’t have self-employment income, you can’t take a foreign housing deduction.
How you figure your foreign housing deduction depends on whether you have only self-employment income or both self-employment income and employer-provided income. In either case, the amount you can deduct is subject to the limit described later.
Self-employed, no employer-provided amounts.
If none of your housing amount is considered paid for with employer-provided amounts, such as when all of your income is from self-employment, you can deduct your foreign housing amount, subject to the limit described later. Take the deduction by including it on line 24j of Schedule 1 (Form 1040).
Self-employed and employer-provided amounts.
If you are both an employee and a self-employed individual during the year, you can exclude the portion of your foreign housing cost amount related to wage income and deduct the portion of your foreign housing cost related to self-employment income. To find the part that you can exclude, multiply your foreign housing amount by the employer-provided amounts (discussed earlier) and then divide the result by your foreign earned income. This is the amount you can use to figure your foreign housing exclusion. You can deduct the balance of the foreign housing amount, subject to the limitation described later.
Example.
Your foreign housing amount for the year is $18,000. During the year, your total foreign earned income is $100,000, of which half ($50,000) is from self-employment and half is from your services as an employee. Half of your foreign housing amount ($18,000 ÷ 2) is considered provided by your employer. You can exclude $9,000 as a foreign housing exclusion. You can deduct the remaining $9,000 as a foreign housing deduction subject to the following limit below.
Limitation
Your foreign housing deduction cannot be more than your foreign earned income minus the total of:
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Your foreign earned income exclusion, plus
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Your foreign housing exclusion.
Carryover.
You can carry over to the next year any part of your foreign housing deduction that is not allowed because of the limitation. You are allowed to carry over your excess foreign housing deduction to the next year only. If you can’t deduct it in the next year, you can’t carry it over to any other year. You deduct the carryover in figuring adjusted gross income. The amount of carryover you can deduct is limited to your foreign earned income for the year of the carryover minus the total of your foreign earned income exclusion, foreign housing exclusion, and foreign housing deduction for that year.
Married Couples
If both you and your spouse qualify for the foreign housing exclusion and/or the foreign housing deduction, how you figure the benefits depends on whether you maintain separate households.
Separate Households
If you and your spouse live apart and maintain separate households, you both may be able to claim the foreign housing exclusion and/or the foreign housing deduction. You both can claim the exclusion and/or the deduction if both of the following conditions are met.
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You and your spouse have different tax homes that aren’t within reasonable commuting distance of each other.
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Neither spouse's residence is within reasonable commuting distance of the other spouse's tax home.
Housing exclusion.
Each spouse claiming a housing exclusion must figure separately the part of the housing amount that is attributable to employer-provided amounts, based on the separate foreign earned income.
One Household
If you and your spouse live in the same foreign household and file a joint return, you may figure your housing amounts jointly or separately. However, if you and your spouse live in the same foreign household and you choose to file separate returns, you must figure your housing amounts separately.
In computing the housing amounts jointly, you can combine your housing expenses and figure one base housing amount. Either spouse (but not both) can claim the housing exclusion and/or housing deduction. However, if you and your spouse have different periods of residence or presence and the one with the shorter period of residence or presence claims the exclusion and/or deduction, you can claim as housing expenses only the expenses for that shorter period.
In computing housing amounts separately, spouses must figure the housing amounts separately using the spouse's respective base house amount. Spouses may allocate all housing expenses to one spouse or allocate housing expenses between the spouses so long as there's no duplication of housing expenses being excluded or deducted.
Tip:
Because each spouse must use their full base housing amount in the calculation, it may be advantageous for spouses residing together and filing jointly to allocate all housing expenses to one spouse and compute their housing cost amounts separately.
Example.
Tom and Jane live together and file a joint return. Tom was a bona fide resident of and had his tax home in Ghana from August 17, 2024, through December 31, 2025. Jane was a bona fide resident of and had her tax home in Ghana from September 15, 2024, through December 31, 2025.
During 2024, Tom received $75,000 of foreign earned income and Jane received $50,000 of foreign earned income. Tom paid $10,000 for housing expenses, of which $7,500 was for expenses incurred from September 15 through the end of the year. Jane paid $3,000 for housing expenses in 2024, all of which were incurred during her period of residence in Ghana.
Tom and Jane figure their housing amount jointly. If Tom claims the housing exclusion, their housing expenses would be $13,000 ($10,000 + $3,000) and their base housing amount, using Tom's 2024 period of residence (August 17–December 31, 2024), would be $7,754 ($56.60 × 137 days). Tom's housing amount would be $5,246 ($13,000 – $7,754). If, instead, Jane claims the housing exclusion, their housing expenses would be limited to $10,500 ($7,500 + $3,000) and their base housing amount, using Jane's period of residence (September 15–December 31, 2024), would be $6,113 ($56.60 × 108 days). Jane's housing amount would be $4,387 ($10,500 – $6,113).
For more guidance on foreign earned income exclusion, foreign housing exclusion, and foreign housing deduction, see Form 2555 and its instructions, and International practice units are available for help with questions and issues, earlier.
Using the guidance
Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.
Sources and further reading
- Publication 54 (12/2025), Tax Guide for U.S. Citizens and Resident Aliens Abroad: Foreign Earned Income Exclusion, Foreign Housing Exclusion, and Foreign Housing Deduction — Foreign Housing Exclusion and Deduction — Internal Revenue Service; 2025 edition.
The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.