Tax Guide for U.S. Citizens and Resident Aliens Abroad

camps was $2,000, and the value of the meals Jim’s $19,000 housing allowance, total maximum exclusion of $91,500, he must reduce
was $1,000. $145,000. They enter this on line 7. They enter the income by the housing exclusion. The for-
Jim had $2,500 of unreimbursed employee their interest income of $7,500 on line 8a. eign earned income exclusion on line 42 is
business expenses for travel, meals, and lodging
that were allocable to his foreign earned
income.
Because of adverse conditions in Country X,
Judy and the children lived in City Y, Country Y
(which is not a high-cost locality), where she
At this point, Jim will complete Form 2555
and Judy will complete Form 2555-EZ to figure
their foreign earned income and housing exclusions.
Jim’s Form 2555. On Jim’s Form 2555, Part
$85,190 ($98,000 – $12,810).
When Jim combines this exclusion of
$85,190 with his housing exclusion of $12,810
he comes up with a total exclusion of $98,000 in
Part VIII.
worked as an executive secretary with a U.S. IV, he lists his salary on line 19, his housing The Adamses cannot deduct any of Jim’s
company. Her earnings from this job were
$47,000. These earnings were subject to foreign
income tax.
The Adams family rented an apartment in
Country Y for Judy and the children. They paid
$1,000 a month rent, including utilities, or
allowance on line 22e, and the fair market value
of meals and lodging provided in camps by his
employer on lines 21a and 21b. The entries on
lines 21a and 21b are not shown as income on
Form 1040. Jim enters the total of these two
entries on line 25 of Form 2555.
$2,500 of unreimbursed employee business ex-
penses because they are all allocable to ex-
cluded income. However, the Adamses are still
entitled to the full standard deduction for a married
couple filing jointly.
$12,000 for the year. The Adamses choose to Jim combines his housing expenses,
treat the expenses for the apartment as those for $19,000, with the qualified expenses for the sec- Judy’s Form 2555-EZ. Judy completes a
a qualified second foreign household. They in- ond household, $12,000, and enters total hous- Form 2555-EZ to figure her foreign earned in-
clude the $12,000 Country Y housing expenses ing expenses of $31,000 on line 28. His limit on come exclusion. Her foreign earned income is
with Jim’s $19,000 Country X housing expenses.
This results in a larger total housing
exclusion.
Jim and Judy had taxable U.S. interest income
of $7,500 for the year. The Adamses had
no other income for the year and do not itemize
deductions.
housing expenses is $27,450 (30% of $91,500)
because his qualifying period includes all of
2010 and the expenses were not incurred in
high-cost localities. Jim enters $27,450 on lines
29b and 30. This is the limit on his housing
expenses. He puts a base housing amount of
$14,640 on line 32 and subtracts that amount to
less than the maximum excludable amount. On
Judy’s Form 2555-EZ, Part IV, she lists her
salary on line 17. She figures an exclusion of
$47,000 on line 18.
The Adamses enter their combined exclu-
sions of $145,000 in parentheses on line 21,
The Adamses report their income and figure arrive at a total foreign housing amount of Form 1040. They identify this item to the left of
their foreign earned income exclusions and for- $12,810 on line 33. He figures a housing exclu- the entry space. Their adjusted gross income on
eign housing exclusion, as shown on the accom- sion of $12,810 on line 36.
line 37 (not shown) is $7,500 (their investment
panying filled-in forms. Jim figures his foreign earned income exclu- income), which does not qualify for exclusion.
First, they list their income on the front of sion in Part VII of Form 2555. Because his for-
Form 1040. Their combined salaries, including eign earned income ($98,000) is more than the
Chapter 4 Foreign Earned Income and Housing: Exclusion – Deduction Page 23