Bona Fide Residence vs. Physical Presence
How Do You Qualify for the Foreign Earned Income Exclusion?
Qualifying for the Foreign Earned Income Exclusion (FEIE) is not automatic simply because you live overseas.
To exclude foreign earned income, you must meet either the Bona Fide Residence Test or the Physical Presence Test
Bona Fide Residence Test
This test focuses on whether you have established a genuine, ongoing residence in a foreign country for an entire tax year.
The IRS looks at factors such as length of stay, type of visa, permanent housing, and family and community ties. This test is typically used by long-term expats who relocate abroad on a more permanent basis.
This article is for informational purposes only and does not constitute tax advice. Every taxpayer’s situation is unique. Please consult directly for a personalized review of your international tax position. We offer a complimentary initial consultation to discuss your specific facts and planning opportunities.
Physical Presence Test
This test is strictly mathematical. You must be physically present in one or more foreign countries for 330 full days during any 12-month period.
The 12-month period does not have to match the calendar year. Intent does not matter — day count does. This test is often used by contractors, digital nomads, and individuals on temporary overseas assignments.
Foreign Housing Exclusion
In addition to excluding earned income, qualifying taxpayers may also claim the Foreign Housing Exclusion (or deduction for self-employed individuals).
Eligible expenses may include:
• Rent
• Utilities (excluding telephone)
• Property insurance
• Residential parking
• Certain occupancy taxes
There is a base housing amount and a location-based cap. In high-cost cities, the housing exclusion can significantly increase the total amount excluded from U.S. taxation.
Why This Matters
Taxpayers can apply the wrong test, fail to track days properly, or overlook housing exclusion opportunities. International tax compliance and qualification should be documented carefully.
If you’re living overseas — whether permanently or temporarily — we can review your situation to determine which test applies and whether the Foreign Housing Exclusion can further reduce your U.S. tax.
Questions? Let’s Talk.