Tokyo and Hong Kong have the highest allowable housing costs for 2013 for purposes of the foreign housing exclusion under Sec. 911(c). The limitation for Tokyo is $320.82 per day, or $117,100 for the entire year. For Hong Kong, it is $313.15 a day, or $114,300 for the year. The cities are followed, in order, by Moscow; Geneva; Osaka-Kobe, Japan; and Singapore (see chart).
The cities are among 288 places the IRS identified Wednesday in Notice 2013-31, an annual update, as having allowable foreign housing exclusions above the otherwise applicable limitation for 2013 of $29,280. The top five high-cost cities are the same as in the 2012 list (see Notice 2012-19).
Subject to limitations, qualified individual taxpayers may elect to exclude from gross income under Sec. 911(a) their foreign earned income and foreign housing costs. The individual must meet the bona fide residence or physical presence test. The income exclusion and housing cost exclusion together may not exceed the taxpayer’s foreign earned income for the year.
The foreign housing cost exclusion is further limited to 30% of the foreign earned income limitation, as adjusted for inflation, or, for all of 2013, $29,280 of qualifying housing costs above a threshold amount of 16% of the foreign earned income exclusion limitation, or, for 2013, $15,616. The IRS is authorized by Sec. 911(c)(2)(B) to adjust the 30% limitation amount based on geographical differences in housing costs relative to those in the United States, which it does annually.
Several locations in France tied for ninth place in 2013: Paris and its suburbs of Garches, Sevres, and Suresnes, and Versailles. All were just behind Luanda, the capital of Angola, which is undergoing an oil-related economic boom but whose per capita GDP of $6,200 remains less than one-eighth that of the United States (Central Intelligence Agency, The World Factbook).
Notice 2013-31 is effective for tax years beginning on or after Jan. 1, 2013; however, taxpayers may elect to apply it to their 2012 tax return instead of the otherwise applicable adjusted limitation in the 2012 notice.
Paul Bonner (
) is a JofA senior editor.