IRS Issues 2014 Foreign Housing Tax Deduction Limits

By Editorial 18 April, 2014

The Internal Revenue Service (IRS) has issued Notice 2014-29 that provides inflation-adjusted limitations on foreign housing expenses for the 2014 tax year, and shows that Hong Kong, Moscow, and Geneva are judged to be the three most expensive foreign cities to live in for purposes of the United States tax code's foreign housing exclusion.

To be published officially in the Internal Revenue Bulletin dated April 28, the Notice shows how an individual can elect to exclude certain housing costs from gross income in the 2014 tax year, beginning on January 1.

Under a specified formula, the US tax code generally limits the allowable housing expenses to 30 percent of the excludable amount applicable for each year, which is USD99,200 for 2014. Assuming that the entire taxable year of a qualified individual is spent abroad within the tax year, the maximum housing expenses limit for 2014 would therefore be USD29,760.

However, the IRS can adjust the maximum limitation based on geographic differences in housing costs relative to housing costs in the US. It usually issues annual notices with those adjustments, and Notice 2014-29 therefore includes a table listing the foreign locations for which the IRS is allowing an increased limitation on housing expenses, due to high housing costs relative to housing costs in the US.

For example, in Hong Kong, the limitation rises to USD114,300, in Moscow to USD108,000, and in Geneva to USD100,500. On the other end of the scale, the limitation on housing costs in Bermuda is USD90,000 annually, while in the Cayman Islands it is only 48,000, and in the Bahamas (Nassau) it is 49,700. Tokyo, London, and Singapore see limits of USD96,000, USD88,700, and USD86,300, respectively.

In locations where the amount has increased from the amount in 2013, the Notice also allows taxpayers who incurred housing expenses in 2013 to elect to apply the 2014 tax year limitation amount to the 2013 tax year.

It is indicated that the Treasury Department and the IRS anticipate that future annual notices providing adjustments to housing expense limitations will make a similar election available to qualified individuals that incur housing expenses in the immediately preceding year, i.e. when adjusted housing expense limitations for 2015 are issued, it is expected that taxpayers will be permitted to apply those adjusted limitations to the 2014 taxable year.

Tags: Individuals | Expatriates | Tax | Law | Internal Revenue Service (IRS) | United States | Tax Breaks | Regulation | Inflation | Individual Income Tax | Expats |


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