IRS releases 2016 adjusted foreign housing allowances; many locations remain high-cost areas
The IRS has issued the 2016 inflation adjustments to the foreign housing expenses limitation used for calculating the exclusion under Code Sec. 911(c) for tax years beginning on or after January 1, 2016. The maximum inflation-adjusted limitation on housing expenses for 2016 is $30,390, and the minimum is $16,208.
Code Sec. 911 allows certain U.S. taxpayers working abroad to exclude a certain amount of their reasonable foreign housing expenses from their gross income. The reasonable amount of expenses that may be used in calculating the maximum exclusion limit is subject to a base amount of 16 percent of the foreign earned income exclusion for the year, computed on a daily basis, and multiplied by the number of days of foreign residence or presence in that year. Reasonable foreign housing expenses in excess of the base housing amount are limited to 30 percent of the taxpayer’s foreign earned income inclusion limitation, similarly calculated.
Inflation adjustments are made on the basis of geographic differences in housing costs relative to housing costs in the United States. The limitation placed on the exclusion of employer-provided housing is tied to the taxpayer’s foreign earned income maximum exclusion amount. For 2016, the maximum foreign earned income exclusion is $101,300 for the year, or $276.76 per day.
For many locations, the maximum housing allowance limits reflected changes from 2015 to 2016; others reflected no change. The 2016 table lists over 275 locations with daily and full-year limitations on housing expenses (in lieu of the otherwise applicable limitation of $30,390) for 2016. They reflect foreign locations with high housing costs relative to housing costs in the U.S.
Among these are:
- Sydney, Australia: $61,400, a decrease from $70,000
- Brussels, Belgium: $34,900, a decrease from $44,600
- Toronto, Canada: $41,400, a decrease from $49,700
- Beijing, China: $71,200, unchanged from $71,200
- Chiba-Ken, Japan: $36,300, an increase from $35,600
- Doha, Qatar: $42,733, an increase from $36,264
- Madrid, Spain: $55,700, a decrease from $63,600
- Kiev, Ukraine: $72,000, unchanged from $72,000
- Dubai, United Arab Emirates: $57,174, unchanged from $57,174
- London, United Kingdom: $82,000, a decrease from $85,300
Qualified individuals incurring housing expenses in 2015 in an area listed as high-cost for 2016 have the option of applying the housing expense limitations on the 2016 list rather than on the 2015 list found in Notice 2015-33, despite Instructions to Form 2555 (2015). However, many locations on the 2016 list reflect slightly lower housing costs because of currency fluctuations and other factors. When adjusted housing expense limitations for 2017 are issued, the IRS stated that it also expects that taxpayers will be permitted to apply those adjusted limitations to the 2016 taxable year.
As a result of the Trade Preferences Extension Act of 2015 (P.L. 114-27), beginning in tax years after December 31, 2014, taxpayers electing to claim either the foreign earned income exclusion or the foreign housing expenses exclusion or both under Code Sec. 911, are barred from claiming the refundable portion of the child tax credit.