Foreign Housing Exclusion Calculator 2026

It is a separate exclusion under section 911 that lets Americans working abroad exclude part of their housing costs on top of the Foreign Earned Income Exclusion. You claim it on Form 2555. It exists because the government accepts that housing abroad often costs far more than it would at home, and it is the single most under-claimed relief among Americans in expensive cities.

Take your qualifying housing expenses for the year, cap them at the limit for your location, then subtract the base housing amount of $21,264 for 2026. What remains is your housing amount. The base exists because you would have paid for somewhere to live in any case, so only the excess above a notional floor is relieved.

London is capped at $68,600 for 2026 under Notice 2026-25, well above the generally applicable limit of $39,870. That difference is worth almost $29,000 of extra exclusion to a Londoner with high rent. Note that the figure changed for 2026 — many published guides still quote the 2025 London limit of $67,000.

No, and this surprises people. Notice 2026-25 lists specific UK locations with adjusted limits, including London, Caversham, Reading, Cheltenham, Surrey and others. Cities such as Edinburgh, Birmingham, Bristol, Belfast, Cambridge and Liverpool are expressly subject to the generally applicable limitation of $39,870 instead. Picking the right row matters more than almost any other input here.

For some locations, yes. Notice 2026-25 allows a qualified individual incurring housing expenses in 2025 in a location whose 2026 limit is higher to apply the 2026 limit in place of the 2025 figure. For London that is worth an extra $1,600 of exclusion, and for Cheltenham $7,000. If your 2025 return is still open, on extension, or capable of amendment, this is free money that almost nobody claims.

The base housing amount is 16% of the maximum Foreign Earned Income Exclusion, which is $21,264 for 2026. It represents the housing cost you would have borne anyway had you stayed in the United States, so only spending above that level is treated as an additional cost of working abroad. It is prorated if you do not qualify for the whole year.

Rent, utilities other than telephone, property and personal liability insurance on the home, non-refundable fees paid to secure a lease, rental of furniture and accessories, residential parking, and necessary repairs. The expenses must be reasonable rather than lavish, and they can include costs for your spouse and dependants where they live with you.

The cost of buying or improving a property, principal payments on a mortgage, depreciation, deductible interest and taxes, the cost of buying furniture, domestic staff, and pay television. This catches out owner-occupiers in particular: if you own your London home rather than rent it, most of what you spend on it does not qualify, which is a common and expensive misunderstanding.

They are the same computation with different plumbing. Where your housing is paid for out of employer-provided amounts, including your salary, you claim an exclusion. Where it is paid out of self-employment earnings, you claim a deduction instead. The deduction is limited to your foreign earned income after the exclusions and carries forward one year only, so a self-employed person with a large housing amount can lose part of it outright.

Yes, and that is the point. They are additive rather than alternatives, so an American in London can exclude the housing amount and then the Foreign Earned Income Exclusion on top. The Foreign Earned Income Exclusion is capped at $132,900 for 2026 and is limited to your foreign earned income after the housing exclusion, so the two together can never exceed what you actually earned abroad.

Yes. The housing exclusion is available only to a qualified individual, which means you must have a tax home abroad and satisfy either the bona fide residence test or the physical presence test of 330 full days in a 12-month period. If you fail both, you get neither the housing exclusion nor the Foreign Earned Income Exclusion, however high your rent is.

Both the limit and the base housing amount are prorated by the number of qualifying days that fall in your tax year. Someone who moves to London in July gets roughly half the limit and half the base, which is why a mid-year arrival often produces a much smaller housing amount than the annual figures suggest. Adjust the qualifying days field above to see the effect.

Not on the same home. Where spouses live together and share housing expenses, only one of you can claim the housing exclusion for that residence, although each of you may claim your own Foreign Earned Income Exclusion against your own earnings. Where you genuinely maintain separate households abroad, separate claims become possible. This is a point worth getting right before filing rather than after.

The saving comes off the top of your income because of the stacking rule, so it is relieved at your highest rates rather than your lowest. For a higher earner in the 35% bracket, a $47,000 housing amount is worth roughly $16,000 of federal tax. The calculator applies the marginal rate you select, which gives a reasonable estimate rather than an exact figure.

Your remaining income is taxed at the rates that would have applied had you not claimed the exclusions. In other words, the excluded amount still fills up the lower brackets even though it is not itself taxed. That is why the exclusions do not drop you into a low bracket, and why the true value of the housing exclusion is measured at your top rate rather than your average one.

It depends on your rates, and in the United Kingdom the answer is frequently the credit. UK income tax at 40% or 45% usually exceeds the US tax on the same income, so foreign tax credits can wipe out the US liability entirely while also generating carryforwards. The exclusions can be worth more where your UK tax is unusually low, for example under Overseas Workday Relief, or where much of your income is not UK taxed. Model both before choosing.

Because it locks you out. If you revoke the Foreign Earned Income Exclusion or the housing exclusion, you cannot claim it again for the next five tax years without the consent of the IRS. Switching between the exclusion and the credit is therefore not a decision to take casually year by year, and it is one of the few genuinely irreversible choices on an expatriate return.

No. Neither the housing exclusion nor the Foreign Earned Income Exclusion reduces self-employment tax, which is charged on your full net earnings regardless. A self-employed American in London can exclude a large housing amount, owe no income tax at all, and still face a substantial self-employment tax bill unless a totalization agreement removes it.

Yes. The exclusions are claimed on a return, so they only apply if you file and elect them. Someone whose entire income is covered still has a filing obligation, and may well have Form 8938 and FBAR reporting on top. Failing to file on the basis that nothing is owed is how otherwise compliant people end up needing a disclosure programme years later.

Keep your lease, proof of rent paid, utility bills, insurance documents and any lease fees, together with evidence of your qualifying days such as travel records. The housing exclusion is a figure the IRS can and does query, particularly where a large location-specific limit is claimed, and the case is far easier to make with contemporaneous documents than reconstructed ones.