IRS Releases Inflation Adjusted Foreign Housing Expense Deduction Limits

The IRS has provided the inflation-adjusted limitations on foreign housing expenses for 2011 (Notice 2011-8).

Under IRC § 911(a), a qualified individual can elect to exclude from gross income his or her foreign earned income and housing costs. Section 911(c)(1) provides a formula for determining the excludible amount of the individual’s foreign housing costs. Generally, under section 911(c)(2)(A), a qualified individual will be limited to maximum housing expenses of $27,870 in 2011.

Expats can deduct foreign housing
expenses

However, the IRS can adjust the maximum limitation based on geographic differences in housing costs relative to housing costs in the United States, and since 2006 it has issued annual notices adjusting the limitation for qualified individuals who live in countries with high housing costs compared to U.S. housing.

Notice 2011-8 provides a table of more than 400 foreign locations for which the IRS is allowing an increased limitation on housing expenses. Some of the highest limitations for 2011 are for Bermuda ($90,000 for the full-year limitation); Hong Kong ($114,300); Paris ($84,800); Tokyo ($118,500); and Moscow ($108,000). 

In locations where the amount has increased from the amount in 2010 (listed in Notice 2010-27), the notice also allows taxpayers who incurred housing expenses in 2010 to elect to apply the 2011 limitation amount to the 2010 year.