Glossary · Expat tax

Foreign housing exclusion

The foreign housing exclusion lets Americans who qualify for the foreign earned income exclusion also exclude housing costs above a base amount.

Updated September 2026 · Sources

Tax year 2026, a full year abroad

$21,264: is the base amount, 16% of the $132,900 exclusion limit. Costs up to it are never excluded.
$39,870: is the cap on housing costs in most places, 30% of the limit. Listed high-cost cities have their own.
$18,606: is the largest full-year exclusion where the standard cap applies.

The base and the cap are set per day, at $58.26 and $109.23, so a part year of qualifying days gets less.

Housing costs are the reasonable costs of housing you, and a spouse and dependents who live with you. Rent, utilities and insurance count. Mortgage interest, property taxes and lavish or extravagant costs do not. Only the home nearest your tax home counts. The exception is a separate home abroad for your family, kept because of dangerous or adverse conditions.

IRS Notice 2026-25, published April 20, 2026, sets higher caps for about 100 high-cost locations. For 2026, Hong Kong’s cap is $114,300, Singapore’s is $86,700 and Dubai’s is $57,174.

The exclusion covers housing paid for with employer-provided amounts, which include your salary. Self-employed people take the amount as a deduction instead, the foreign housing deduction. It cannot exceed their foreign earned income minus the amounts they exclude. The exclusion and the deduction are both claimed on Form 2555. The housing exclusion is its own election, separate from the foreign earned income exclusion.

The housing exclusion is taken first. The earned income exclusion can then cover no more than the pay that remains. The base amount is the part people forget. Over a full year under the standard cap, $30,000 of housing costs excludes $8,736.

Sources

Reviewed and updated September 2026. General information, not advice for your situation.