Foreign Earned Income Exclusion Revoked in ineligible?

[afors]

I have been living abroad, taking the Foreign Earned Income Exclusion for the past two years. This year however, I won't be eligible for it due to a move back to the USA in October. I plan on utilising the Foreign Tax Credit. 

If I use take the Foreign Tax Credit this year will I be automatically revoking the FEIE? I will be living abroad again soon and don't want to have to wait 5 years before using the FEIE again. What is my best strategy?

Thanks!

[MaryK4]

If you qualify for the physical presence test, you can use the Foreign Earned Income Exclusion for 2020 by using different qualification dates (you must be outside the U.S> for 330 days in a 365 day period, but it does not have to be a calendar year).  By using an October 2019 to October 2020 qualifying period, you will be able to exclude the income prorata, and not disqualify you for the five year period.

[afors]

For my 2018 filing I used December 2017-2018 as my qualifying period. I was going to use December 2018-December 2019 as my qualifying period for my 2019 taxes, however I returned in October 2019.

Can I used October 2018-October 2019 as my qualifying period for my 2019 taxes even though Oct - Dec 2018 was used in my previous qualifying period? I thought qualifying periods could not overlap?

Thanks again for you insight!

[MaryK4 · Accepted solution]

You are not required to use consecutive qualifying periods:

" In determining whether the 12-month period falls within a longer stay in the foreign country, 12-month periods can overlap one another."

Example:

You live, work, and have a tax home in New Zealand from January 1, 2019, through August 31, 2020, except that you spend 28 days in February 2019 and 28 days in February 2020 on vacation in the United States. You are present in New Zealand for at least 330 full days during each of the following two 12-month periods: January 1, 2019 - December 31, 2019, and September 1, 2019 - August 31, 2020. Your qualifying 12-month period for 2019 is January 1, 2019 – December 31, 2019.  For 2020, you may choose September 1, 2019 – August 31, 2020 as your qualifying period. Refer to Chapter 4, Figure 4-B in Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

See Foreign Earned Income Exclusion - Physical Presence Test

@afors

[wdkrkennedy]

If I do not qualify for a period of time overseas and thus do not fill out form 2555 this year, does that mean I am "revoking" my rights to the Foreign Earned Income Exclusion for the next 5 years?

Thank you for your assistance!

[LinaJ2020]

No, it does not mean that.  Revoking the choice means if you qualify for the Form 2555 but choose not to use it. 

Per IRS, if you take a foreign tax credit for tax on income you could have excluded under your choice to exclude foreign earned income or your choice to exclude foreign housing costs, one or both of the choices may be considered revoked.  For details, click here: https://www.irs.gov/pub/irs-pdf/p54.pdf ( page 25)

@wdkrkennedy

[JSDchrome]

Actually, you likely be eligible for the the FEIE this year despite moving back this October.

Although you will not be a Bona Fide Resident for US tax year 2020, you may qualify for a pro-rata share of the FEIE from Jan to Oct using the Physical Presence Test. This would apply if you had not been in the US for a total of more than 35 days during the the 365 window from Oct 2019 to the date of your return to the US in 2020.

If this is true in your case, not using the partial FEIE for 2020 would serve as a revocation and you’d not be able to use it again for five years without paying for a Private Letter Ruling (and that could rule against you). 

If you plan to return overseas involves moving to a higher taxing jurisdiction, then the FTC approach instead of the FEIE is likely the better choice anyway, even after you move.