Can I claim the Foreign Housing Exclusion but NOT Foreign Income Exclusion? I contributed to a Roth IRA so I can't exclude my foreign income, as it's my only income.

[christian23231]

Turbotax seems to only allow me to answer questions about Housing Exclusion if I'm also applying for the Foreign Income Exclusion. I understand I can't contribute to a Roth IRA if I don't have taxable income, so I can't claim the Foreign Income Exclusion. However, I'd like to claim the Foreign Housing Exclusion if possible.

[SusanY1]

No, you can only claim the foreign housing exclusion as part of the foreign earned income exclusion.  Do you pay tax in your country of residence?  Have you considered using the foreign tax credit instead of excluding your income so that you would then have earned income to allow your contribution to the Roth?  

CAUTION:  If you elect to switch to the Foreign Tax Credit, and you have taken the Foreign Earned Income Exclusion in prior years, this amounts to revoking that exclusion which bars you from being able to take the exclusion again for a period of five years without first seeking permission from the IRS.  Permission from the IRS requires a Private Letter Ruling, which has a filing fee of $2,000. 

[christian23231]

Thank you very much for your response. Unfortunately, I can not take the tax credit because I am exempt from paying taxes in the foreign country. On Form 2555, Part VI says Taxpayers Claiming the Housing Exclusion and/or Deduction and part VII says Taxpayers Claiming the Foreign Earned Income Exclusion. Can I not simply complete Form 2555 and fill out Part VI but not Part VII, so that I can claim the Foreign Housing Exclusion and not the Foreign Income Exclusion?

[SusanY1]

I am taking some time to research this further for you, and I will get back to you as soon as possible.  From looking at it, it appears that perhaps you can but I need to look a little more closely.

Once I am sure, I also need to determine how to make this work with the TurboTax software.  

Give me some time with this, and I will let you know what I find out!

[SusanY1 · Accepted solution]

Thank you for your patience and for this question.  After some research, I did find that this is allowed.   My apologies for the incorrect initial answer.  

TurboTax does not have a way to do this our online software or in the interview mode of the program, but you can do this via an override on the form itself.   

To do this using the desktop software (CD or download version), enter all of your information as if you are going to exclude all of the income using the Foreign Earned Income Exclusion and the Housing Exclusion.  

Then switch to the Forms mode by clicking on the Forms icon in the upper right of the program.

Find Form 2555, p. 3 in the list of forms on the left.  Right-click on Line 42 to override the amount of the Foreign Earned Income Exclusion and type 0.  This will still transfer the housing exclusion to Line 8 of Schedule 1 as a negative income adjustment.  

Overrides in the software do disqualify the return from electronic filing, so you will need to print this return and mail it in for processing. 

However, this will allow you to have the earned income needed to permit your Roth IRA contribution and does appear to be permitted according to both the form instructions and IRS Publication 54.

So, yes, you can simply fill in the Housing Exclusion section of Form 2555 and take only that exclusion on your tax return and report your income on your tax return. 

Thank you again for this question and for allowing me some time to get the right answer to you.  

[christian23231]

Thank you very much for looking into the matter further. I really appreciate your help! 

[kmb3]

i am having the same issue! except i am not eligible to exclude income, i'm taking the credit but i need to exclude the housing $. how do i switch to forms view in the online version of turbotax?

[kmb3]

Ok i see that it's not possible to do in the online version...and that's what i have access to. how do i override this glitch in your program? 

i can put that the housing was for the convenience of the employer and it reduces my tax liability by hundreds of dollars but that's not really right....

[JoannaB2]

If you answer No to the question in Turbo Tax "Would you like to exclude your foreign earned income, your foreign wages on Form 2555 will be deleted. You must claim foreign earned exclusion to claim foreign housing exclusion on your income tax return as it will disqualify from claiming either one.

The US Taxpayers living and  working at a US company abroad, may  

qualify to claim Foreiign Earned  Income Exclusion on their taxes as deduction from gross income.  To qualify for the exclusion, you must meet the bonafide residence test or physical presence test.  

The foreign housing exclusion applies only to amounts paid for with employer-provided amounts on your behalf by your employer that are taxable foreign earned income to you for the year (without regard to the foreign earned income exclusion). 

[Jason202104]

Hi SusanY1:

I am using Desktop version of TurboTax Premier to prepare my 2020 tax return. One issue I ran into is foreign income exclusion. I calculated the amount that can be excluded based on IRS instruction, I double checked the number and believe my calculation is correct. However, the number I calculated is different from the number from the software by 10K+.

Is there anyone in Intuit I can contact to discuss the difference? My guess is that this is because is that I am living in Shanghai, which has a higher limit for house exclusion. Not sure if TurboTax takes into consideration the area specific house exclusion limit. 

Could I send you private message to discuss this, as it would involve my personal income.

Thanks a lot!

[DaveF1006]

It depends. According to this link from IRS. gov., "The computation of the base housing amount (line 32 of Form 2555) is tied to the maximum foreign earned income exclusion. The amount is 16% of the maximum exclusion amount divided by 365 (366 if a leap year), then multiplied by the number of days in your qualifying period that fall within your tax year."

To my knowledge, the IRS does not take into account specific differences related to the geographical location of your home.