The Tax Increase Prevention and Reconciliation Act of 2005 limited the amount of foreign housing exclusion that can be elected by US citizens and resident aliens living outside the United States.
Under the new tax law, foreign housing costs could be excluded to the extent that they exceed 16% of the foreign earned income exclusion or $13,184 (16% x $82,400). However, the maximum housing expenses that can be taken into account are limited to 30% of the foreign earned income exclusion or $24,720 (30% x $82,400).
Thus, the maximum housing cost amount that could be excluded in 2006 was $11,536 ($24,720 less $13,184).
The new law held out a thread of hope for relief by indicating that the Treasury Secretary could increase the upper limits of the formula where local housing costs were deemed to be high.
Today, the Treasury Department released a table prepared by the Office of Allowances of the U.S. Department of State that identifies locations within countries with high housing costs, and provides an adjusted limitation on qualified housing expenses for determining the foreign housing exclusion.
The Treasury has found that housing costs in Bermuda are high, and has raised the upper limit from $24,720 to $26,200. This will have the effect of increasing the maximum housing exclusion for Bermuda based expatriates from $11,536 to $13,016. This is an increase of $1,480.
The tax effect of this increase for most individuals will be a tax savings of about $375.
The tax advice given by this column is, by necessity, general in nature. You should, of course, check with your own U.S. tax consultant as to how specific transactions affect you since tax advice varies with individual circumstances. |