Foreign Earned Income / Deduction

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If a student work as an intern in abroad, can he show the following expenses incurred there in Form 1116 (Field 2) in Deduction and Losses section? Thanks!

1. Housing

2. Everyday Food

3. Everyday transportation

MaryK4

Alumni - Intuit

No, a student intern generally cannot deduct housing, everyday food, or everyday transportation expenses on Form 1116, Line 2.

The IRS considers these to be personal living expenses, which are typically non-deductible for employees under current tax law. While Line 2 of Form 1116 is for deductions "definitely related" to foreign income, it is generally reserved for business-related expenses like moving costs to a foreign post or professional supplies.

If you qualify for the Foreign Earned Income Exclusion, you may be able to exclude or deduct certain housing amounts from your taxable income. You generally must meet the "Physical Presence Test" or "Bona Fide Residence Test" to qualify.

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kgraghuAuthor

Level 4

Thank you for the clarification.

It looks like adding the expense decreases the FTC and increases the carryover because the expenses reduce the foreign taxable income but not the global taxable income. I am not planning to show any foreign expenses. because of this weird calculation.

DaveF1006

Alumni - Intuit

That is correct. The expenses reduce the FTC because the system is designed to ensure the U.S. only gives up its tax revenue on the net profit you earned abroad.

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