957 / What is the foreign housing exclusion (or deduction)?
The foreign housing exclusion applies to housing costs paid for with employer-provided funds (including amounts paid by the employer to the employee as taxable foreign earned income), while the foreign housing deduction applies to an individual who pays for foreign housing with self-employment earnings.
The foreign housing exclusion (or deduction) allows an individual to exclude (or deduct) amounts spent on housing costs while residing abroad, provided that the individual’s tax home is found to be in a foreign country and the taxpayer meets either the bona fide residence test or the physical presence test.1
An individual’s “housing amount” is the total housing costs for the year minus a base amount that is tied to the maximum foreign earned income exclusion for the year. The amount is 16 percent of the maximum foreign earned income exclusion ($130,000 in 2025, $126,500 in 2024, $120,000 in 2023, $112,000 in 2022, $108,700 in 2021, $107,600 in 2020, $105,900 in 2019, and $103,900 in 2018, as indexed for inflation),2 calculated on a daily basis, and multiplied by the number of days spent abroad in the tax year.3