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

Canadian, Israeli, and Mexican organiza- the expense is connected with earning the in- chapter 4), you must allocate deductible moving
tions. Under income tax treaties, you can de- come in 2 years. The moving expense is con- expenses to foreign earned income.
duct contributions to certain Canadian, Israeli,
and Mexican charitable organizations. These organizations
must meet the qualifications that a
U.S. charitable organization must meet under
U.S. tax law. The organization can tell you
whether it qualifies. If you are unable to get this
nected with the year of the move and the
following year if the move is from the United
States to a foreign country. The moving expense
is connected with the year of the move and the
preceding year if the move is from a foreign
country to the United States.
Storage expenses. These expenses are at-
tributable to work you do during the year in
which you incur the storage expenses. You cannot
deduct the amount allocable to excluded
income.
information from the organization itself, contact
the IRS.
You cannot deduct more than the percent-
age limit on charitable contributions applied to
your Canadian, Israeli, or Mexican source income.
If you or a member of your family is
enrolled at a Canadian college or university, the
limit does not apply to gifts to that school. For
additional information on the deduction of contri-
butions to Canadian charities, see Publication
597.
Amount allocable to excluded income. To
figure the amount of your moving expense that is
allocable to your excluded foreign earned income
(and not deductible), you must multiply
your total moving expense deduction by a frac-
tion. The numerator (top number) of the fraction
is the total of your excluded foreign earned in-
come and housing amounts for both years and
the denominator (bottom number) of the fraction
is your total foreign earned income for both
years.
Moving Expense Attributable to
Foreign Earnings in 2 Years
If your moving expense deduction is attributable
to your foreign earnings in 2 years (the year of
the move and the following year), you should
request an extension of time to file your return
for the year of the move until after the end of the
second year. By then, you should have all the
information needed to properly figure the mov-
ing expense deduction. See Extensions under
Example. On November 1, 2009, you trans- When To File and Pay in chapter 1.
Moving Expenses
If you moved to a new home in 2010 because of
your job or business, you may be able to deduct
the expenses of your move. Generally, to be
deductible, the moving expenses must have
been paid or incurred in connection with starting
work at a new job location. See Publication 521
for a complete discussion of the deduction for
moving expenses and information about moves
within the United States.
fer to Monaco. Your tax home is in Monaco, and
you are a bona fide resident of Monaco for the
entire tax year 2010. In 2009, you paid $6,000
for allowable moving expenses for your move
from the United States to Monaco. You were
fully reimbursed (under a nonaccountable plan)
for these expenses in the same year. The reim-
bursement is included in your income. Your only
other income consists of $16,000 wages earned
in 2009 after the date of your move, and $97,600
wages earned in Monaco for 2010.
Because you did not meet the bona fide
If you do not request an extension, you
should figure the part of the moving expense
that you cannot deduct because it is allocable to
the foreign earned income you are excluding.
You do this by multiplying the moving expense
by a fraction, the numerator (top number) of
which is your excluded foreign earned income
for the year of the move, and the denominator
(bottom number) of which is your total foreign
earned income for the year of the move. Once
you know your foreign earnings and exclusion
for the following year, you must either:
Foreign moves. A foreign move is a move in
connection with the start of work at a new job
location outside the United States and its possessions.
A foreign move does not include a
move back to the United States or its possessions.
residence test for at least 120 days during 2009,
the year of the move, the moving expenses are
for services you performed in both 2009 and the
following year, 2010. Your total foreign earned
income for both years is $119,600, consisting of
$16,000 wages for 2009, $97,600 wages for
2010, and $6,000 moving expense reimburse-
• Adjust the moving expense deduction by
filing an amended return for the year of the
move, or
• Recapture any additional unallowable
amount as income on your return for the
following year.
Allocation of
Moving Expenses
When your new place of work is in a foreign
country, your moving expenses are directly conment
for both years.
You have no housing exclusion. The total
amount you can exclude is $106,525, consisting
of the $91,500 full-year exclusion for 2010 and a
$15,025 part-year exclusion for 2009 ($91,400
times the fraction of 60 qualifying bona fide resi-
If, after you make the final computation, you
have an additional amount of allowable moving
expense deduction, you can claim this only on
an amended return for the year of the move. You
cannot claim it on the return for the second year.
nected with the income earned in that foreign
country. If you exclude all or part of the income
dence days over 365 total days in the year). To
find the part of your moving expenses that is not Forms To File
that you earn at the new location under the
foreign earned income exclusion or the foreign
housing exclusion, you cannot deduct the part of
your moving expense that is allocable to the
excluded income.
Also, you cannot deduct the part of the moving
expense related to the excluded income for a
move from a foreign country to the United States
deductible, multiply your $6,000 total expenses
by the fraction $106,525 over $119,600. The
result, $5,344, is your nondeductible amount.
You must report the full amount of the
! moving expense reimbursement in the
CAUTION year in which you received the reimbursement.
In the preceding example, this year
was 2009. You attribute the reimbursement to
Report your moving expenses on Form 3903.
Report your moving expense deduction on line
26 of Form 1040. If you must reduce your mov-
ing expenses by the amount allocable to excluded
income (as explained later under How To
Report Deductions), attach a statement to your
return showing how you figured this amount.
For more information about figuring moving
if you receive a reimbursement that you are able both 2009 and 2010 only to figure the amount of expenses, see Publication 521.
to treat as compensation for services performed foreign earned income eligible for exclusion for
in the foreign country. each year.
Year to which expense is connected. The
Move between foreign countries. If you Contributions to
moving expense is connected with earning the
move between foreign countries, your moving
income (including reimbursements, as disexpense
is allocable to income earned in the Individual Retirement
cussed in chapter 4 under Reimbursement of
moving expenses) either entirely in the year of
the move or in 2 years. It is connected with
earning the income entirely in the year of the
move if you qualify for the foreign earned income
year of the move if you qualified under either the
bona fide residence test or the physical pres-
ence test for a period that includes at least 120
days in the year of the move.
Arrangements
Contributions to your individual retirement ar-
rangements (IRAs) that are traditional IRAs or
exclusion under the bona fide residence test or New place of work in U.S. If your new place Roth IRAs are generally limited to the lesser of
physical presence test for at least 120 days of work is in the United States, the deductible $5,000 ($6,000 if 50 or older in 2010) or your
during that tax year. moving expenses are directly connected with compensation that is includible in your gross
If you do not qualify under either the bona the income earned in the United States. If you income for the tax year. In determining compenfide
residence test or the physical presence test treat a reimbursement from your employer as sation for this purpose, do not take into account
for at least 120 days during the year of the move, foreign earned income (see the discussion in amounts you exclude under either the foreign
Chapter 5 Exemptions, Deductions, and Credits Page 31