Foreign housing expense limitations issued for 2014

BY ALISTAIR M. NEVIUS, J.D.

According to the IRS, Hong Kong, Moscow, and Geneva are the three most expensive foreign cities to live in, for purposes of the Sec. 911 foreign housing exclusion. On Monday, the IRS provided its annual list of inflation-adjusted limitations on foreign housing expenses for 2014 (Notice 2014-29).

Sec. 911(a) allows a qualified individual to elect to exclude his or her foreign earned income and certain housing costs from gross income. Sec. 911(c)(1) provides a formula for determining the excludable amount of the individual’s foreign housing costs. Generally, under Sec. 911(c)(2)(A), a qualified individual will be limited to maximum housing expenses of $29,760 in 2014.

However, the IRS can adjust the maximum limitation based on geographic differences in housing costs relative to housing costs in the United States, and since 2006 it has issued annual notices adjusting the limitation for qualified individuals who live in countries with high housing costs compared to U.S. housing costs.

Notice 2014-29 includes a table listing hundreds of foreign locations for which the IRS is allowing an increased limitation on housing expenses. In locations where the amount has increased from the amount in 2013 (listed in Notice 2013-31), the notice also allows taxpayers who incurred housing expenses in 2013 to elect to apply the 2014 limitation amount to the 2013 year.

Alistair M. Nevius ( anevius@aicpa.org ) is the JofA’s editor-in-chief, tax.

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