US Treasury Increases Housing Exclusion Amount For Expats

by Glen Shapiro, LawAndTax-News.com, New York

10 October 2006

The US Treasury Department and Internal Revenue Service issued Notice 2006-87 on Friday, which permits individuals who work outside the United States and live in foreign countries with high housing costs to deduct or exclude a greater portion of their housing costs.

Although US citizens and residents are generally subject to US tax on their worldwide income, section 911 of the Internal Revenue Code permits individuals who live and work outside the United States to exclude from US tax portions of their earned income and housing costs.

The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) made several changes to section 911, one of which effectively placed a limit on the amount of housing costs that could be taken into account under that section. TIPRA provided the Treasury Department with authority to adjust the new housing cost limitation based on geographic differences in housing costs relative to housing costs in the United States.

In the Notice, using the approach suggested in the legislative history to TIPRA, the Treasury exercised its authority to increase the housing cost limitation, setting forth new higher housing cost amounts for specific locations. The relief provided by the Notice is retroactive to the effective date of TIPRA.

The Notice also requests comments regarding the determination of locations and housing costs in future taxable years.

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