Discussion:FOREIGN HOUSING EXCLUSION????
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Discussion Forum Index --> Tax Questions --> FOREIGN HOUSING EXCLUSION????
| 23 October 2006 | |
| Any expat experts around to explain the foreign housing exclusion to me. I have two clients who have gone expat. One gets reimbursed for apartment like $200,000 and he pays an additional 80,000. Does this get to be excluded? My other client is Taiwan Citizen and U.S. Citizen. He has moved back to Taiwan, and is working for U.S. company. He does not get any reimbursement and has no other home in U.S.; does he also get to deduct his rent or fair value of house? Now if you also know something about tax equalization.... | |
| 23 October 2006 | |
| Can't help on the exclusion. Been too long.
Equalization usually a question of what is the policy. Once you know what they're agreeing to make the taxpayer whole for you run some with/without calculations and you're good to go. | |
| 24 October 2006 | |
| Situation 1 -- the housing exclusion is $288,106 for the full year. No exclusion for interest or taxes.
Situation 2 -- assuming that the housing costs are paid out of salary or housing allowances, the exclusion for the full year is the excess of his housing costs over $11,894. No exclusion for interest or taxes. | |
| 24 October 2006 | |
| You should be using a high-powered programme to handle the maths on these guys.
For 2005, if either person moved mid-year, they will have a prorata $80,000 and a prorata excess ($11,894 x number of days in foreign country). If either of them is on a tax equalization programme, then usually the company pays to have the US tax return prepared by one of the Big Four. Be careful you aren't doing a bunch of work that is going to be done for free by somebody else. | |
| 24 October 2006 | |
| Thank you very much for your replies, as you can tell I need the help. I am still not clear on the housing exclusion in situation two especially. The individual was in Taiwan for the entire year of 2005. He does not receive anything specifically for housing, he just receives a salary which for 2005 was $177,000. I believe in 2005 he paid rent on the apartment where he lives in Taiwan out of his own pocket (from his salary). He does not have a home in U.S. and there is a good chance he won't return. Is he entitled to some kind of a housing exclusion or deduction on top of the 80,000 earned income exclusion.
ps. Yes I will get paid for the equalization and I guess pro series does not qualifiy as a high powered program for this stuff!? | |
| 24 October 2006 | |
| The tax code provides that taxpayer #2 is in fact receiving "employer provided housing expenses" in the form of his salary.
Although I do not use Pro-Series, I see no problem with using that program to optimize the client's elections. | |
| 25 October 2006 | |
| If you're using a programme that does the maths, then you've got one that's high powered enough. CCH ProSystem FX does tax equalizations internally, which could be a boon if you've never done tax equaliztions before.
The housing exclusion is for all housing costs: rent, utilities, housing taxes, contents insurance, additional residential parking space rent, etc.; if it's a cost of providing a roof over his head, he can take it. Additional storage costs are allowed into perpetuity as a moving expense rather than a housing expense. It matters not whether the employer paid it directly or if he paid for it himself; the housing exclusion is his to take. | |
| 25 October 2006 | |
| But what he can't do is double claim both the moving expenses/storage and the foreign housing and earned income exclusion.
He'll need to scale down the moving expense. CCH ProSystem FX has a nifty check box to handle this calculation. Of course for 2006 he can only claim $24,720 (maximum) of housing exclusion, so he may be a lot worse this year, which may cost his employers depending on the tax equalizatin policy. | |
| 25 October 2006 | |
| I truly appreciate all of you for lending your expertise to me. Even though you have beaten me over the head with the law, I just want to review one more time my new understanding of this: My client is a Taiwanese and U.S. dual citizen, he works and lives in Taiwan, has no home in U.S. and most likely will not be returning. He is paid $175,000 a year and none of it is denominated as reimbursement or payment for housing expense. In filing his 2005 U.S. tax return he should be able to claim the $80,000 earned income exclusion, AND a housing exclusion based on his rent, utilities and other related housing costs, subject of course to interrelated calculations on Form 2555. Once again thanks to all of you. | |
