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Discussion Starter · #1 ·
Dear All,

I was wondering if anyone could clarify a few points regarding the foreign housing exclusion for U.S. ex-pats? I am using Turbo Tax to calculate this amount, but still have a few things I can't quite get my head around.

For example, since my wife (also a U.S. citizen) and I own our overseas home, it seems that we cannot deduct home mortgage payments. However, Pub 54 states that we can deduct utilities (electricity, gas and water?). Also, property tax, insurance, repairs and residential parking expenses are deductible?

Assuming this is indeed correct; must the above housing deductions exceed the 16% FEIE amount of $14,864? Then, the foreign housing deduction is determined by taking the excess amount above the $14,864? Is that how this all works? :confused:

I welcome any thoughts/discussion on this topic.

Thanks,
 

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Dear All,

I was wondering if anyone could clarify a few points regarding the foreign housing exclusion for U.S. ex-pats? I am using Turbo Tax to calculate this amount, but still have a few things I can't quite get my head around.

For example, since my wife (also a U.S. citizen) and I own our overseas home, it seems that we cannot deduct home mortgage payments. However, Pub 54 states that we can deduct utilities (electricity, gas and water?). Also, property tax, insurance, repairs and residential parking expenses are deductible?

Assuming this is indeed correct; must the above housing deductions exceed the 16% FEIE amount of $14,864? Then, the foreign housing deduction is determined by taking the excess amount above the $14,864? Is that how this all works? :confused:

I welcome any thoughts/discussion on this topic.

Thanks,
I would love to know your sources (it looks like you have something specific in mind - 16%... and that could be a learning opportunity for me), but from what I see, you should be able to deduct your mortgage interest as an itemized deduction.

"U.S. citizens and resident aliens living outside the United States generally are allowed the same deductions as citizens and residents living in the United States.

If you choose to exclude foreign earned income or housing amounts, you cannot deduct, exclude, or claim a credit for any item that can be allocated to or charged against the excluded amounts. This includes any expenses, losses, and other normally deductible items that are allocable to the excluded income. You can deduct only those expenses connected with earning includible income.

These rules apply only to items definitely related to the excluded earned income and they do not apply to other items that are not definitely related to any particular type of gross income. These rules do not apply to items such as:

Personal exemptions,

Qualified retirement contributions,

Alimony payments,

Charitable contributions,

Medical expenses,

Mortgage interest, or

Real estate taxes on your personal residence.

For purposes of these rules, your housing deduction is not treated as allocable to your excluded income, but the deduction for self-employment tax is."
 

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As you have seen, I've moved your query over to the Expat Tax section.

The Housing Exclusion is completely separate and distinct from the various deductions for mortgage payments and whatever that you can take (i.e. on a Schedule A) and is separate from the housing deduction (which you can only take if part or all of your overseas income is from self-employment).

Your housing deduction has to be allocated to your self-employment income, and the housing deduction in total is then allocated to your excludable income - so it doesn't really do you much good unless your income is higher than the maximum exclusion ($92,800 or thereabouts this year). The housing exclusion is an amount that can be excluded from taxation, pretty much like the FEIE.

Remember, too, that each spouse takes their own FEIE and housing exclusion if they both qualify (though each in proportion to their own earned income).
Cheers,
Bev
 

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Discussion Starter · #4 ·
Pub 54 Foreign Housing Question(s)

Bev,

Thanks so much for moving this thread over to its appropriate discussion area.
I appreciate your incisive information on the subject. That was quite helpful.

We have been living overseas for nearly 20 years, but have always hesitated using the mortgage interest deduction and instead took the standard deduction. However, it seems as though U.S. overseas citizens can take the mortgage interest for overseas property on 1040 Schedule A. The previous response from the person in Canada seemed to indicate as such.

In my earlier query, I was thinking about using the foreign housing exclusion in lieu of filling out Schedule A.

Cheers,
 

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In my earlier query, I was thinking about using the foreign housing exclusion in lieu of filling out Schedule A.
You're entitled to take all the same deductions on Schedule A as any other US taxpayer. The foreign housing exclusion doesn't really cover the same territory as the mortgage and other deductions do - and frankly you can take them both if you're qualified for the FEIE and housing exclusion. (I suspect that's why mortgage interest isn't includable in the housing exclusion - because you're already taking it as a Schedule A deduction.)

I just wonder how much they would save in operating budget for the IRS if they just dropped taxing us expats (like most other countries do). <big sigh>
Cheers,
Bev
 

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Discussion Starter · #6 ·
Foreign Housing

Bev,

Yeah, the IRS certainly doesn't make all of this very straightforward. The notion of a flat tax and less administration has its advantages.

Thanks for your help. Think I am going to try to use the foreign housing exclusion. Apparently, this should include electricity, gas, water, parking, property tax, and insurance expenses (according to Pub 54, page 21?). :juggle:

Cheers,
 

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As I understand it (and I'm sure someone will correct me if I'm wrong), the housing exclusion is supposed to cover housing expenses that your employer is paying for you (and thus which must be included in your declared income). The wording, however, is ambiguous enough so that it covers housing costs paid for by income from your employer.

The one "gotcha" is that if your income from employment overseas isn't your primary source of income, then you have to be able to demonstrate that you're paying your excludable housing costs out of your employment income - and not from "investments" or whatever other sources of income you might have.

There are days when having a very simple (if meagre) financial situation is a big advantage. I only ever took the housing exclusion one time - and only because my income that year was just a tad above the FEIE amount.
Cheers,
Bev
 

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As you have seen, I've moved your query over to the Expat Tax section.

The Housing Exclusion is completely separate and distinct from the various deductions for mortgage payments and whatever that you can take (i.e. on a Schedule A) and is separate from the housing deduction (which you can only take if part or all of your overseas income is from self-employment).

Your housing deduction has to be allocated to your self-employment income, and the housing deduction in total is then allocated to your excludable income - so it doesn't really do you much good unless your income is higher than the maximum exclusion ($92,800 or thereabouts this year). The housing exclusion is an amount that can be excluded from taxation, pretty much like the FEIE.

Remember, too, that each spouse takes their own FEIE and housing exclusion if they both qualify (though each in proportion to their own earned income).
Cheers,
Bev
Yes, indeed the housing exclusion is separate from the itemized morgage interest (form 2555 as opposed to Schedule A).
It may be worth mentionning that typically only one spouse can claim the housing exclusion (the exception bieng if "neither spouse's residence is within reasonable commuting distance of the other spouse's tax home".
 

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Hi,
I also have a question .My fiance and I live together in an apartment off base, and we are soon to be married. Will the Navy help us with housing allowance, even though we already got the apartment?
 

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Hi,
I also have a question .My fiance and I live together in an apartment off base, and we are soon to be married. Will the Navy help us with housing allowance, even though we already got the apartment?
Which Navy is your fiancé with? US or Australian or someone else?
Cheers,
Bev
 
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