United States

IRS provides 2017 adjustment to housing expense limitation

Section 911 housing limitation adjusted for certain high-cost locations


The IRS recently released Notice 2017-21, providing taxpayers working abroad with adjustments to the housing expense limitation under section 911 for certain high-cost locations. Furthermore, the notice allows certain taxpayers to elect to apply these adjusted 2017 limitations to tax years beginning in 2016.

Section 911(a) allows qualified individuals to elect to exclude foreign earned income and housing cost amounts from their U.S.-source gross income. A qualified taxpayer’s excludable housing cost amount is generally their allowable housing expenses for the taxable year less a base amount. For 2017, assuming a taxpayer is eligible for the entire year, the maximum excludable housing amount would generally be $14,294, calculated as a $30,630 allowable housing expense less a base amount of $16,336.

The IRS may, however, issue regulations or other guidance to adjust the maximum allowable housing expense limitation to account for geographic differences in housing costs relative to those in the United States—notice 2017-21 does just that.

Specifically, this notice identifies locations within certain high housing cost countries and provides qualified taxpayers with an adjusted annual maximum and daily housing expense limitation. Therefore, a qualified taxpayer incurring housing expenses in one of the identified high cost locations may use the adjusted limitations provided in the notice when determining their housing cost amount on Form 2555, Foreign Earned Income, for 2017.

For some locations the notice may provide adjusted housing expense limitations that exceed those provided for in guidance released by the IRS relating to high-cost locations for tax year 2016, specifically Notice 2016-21, 2016-12 IRB 465. In these instances, qualified taxpayers may use the higher adjusted housing cost limitations in Notice 2017-21 in lieu of the limitations contained in Notice 2016-21, when determining their housing cost amount on Form 2555 for their 2016 tax return.

Taxpayers incurring housing costs abroad and electing to exclude these amounts from their U.S.-source gross income should pay particular attention to this guidance, as this 2017 notice has the potential to provide a 2016 tax-year benefit.


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