u.s. expat tax guide – brazil
How can US expats in Brazil use the Foreign Housing Exclusion?
The Foreign Housing Exclusion (FHE) is a helpful way for US expats living in Brazil to lower their taxable income by deducting housing expenses.
This includes costs like rent, utilities, household repairs, and even residential parking. However, the IRS has set limits on how much you can exclude, and this limit depends on the city where you live.
How much of your housing expenses can be excluded?
The exclusion limit depends on your location.
For example, in São Paulo, the IRS sets a maximum exclusion of around US$56,600 for 2024. You need to subtract a base amount of US$19,200, which the IRS considers the typical minimum for housing costs in the US.
If your housing expenses total US$50,000, you can exclude US$30,800 (US$50,000 minus US$19,200). Check the IRS guidelines for specific limits in your area.
How do you apply for the Foreign Housing Exclusion?
To claim the foreign housing exclusion, you need to complete Form 2555 and attach it to your US tax return (Form 1040). Here’s a simple guide to follow:
- Confirm Eligibility: Make sure you meet the requirements by passing either the bona fide residence test or the physical presence test.
- Fill Out Form 2555:
- Part I: Provide your personal details and information about your foreign residency or physical presence.
- Part VI: List eligible expenses like rent, utilities, and insurance to calculate your exclusion.
- Part VII: If you are also using the Foreign Earned Income Exclusion, calculate and report it here.
- Attach to Your Tax Return: Attach Form 2555 to your tax return.
- File On Time: File your tax return by April 15, or June 15 if you are living abroad. Extensions are available if needed.
Keep Good Records: Maintain detailed records of your housing expenses and residency as the IRS may request them.
How much total income can you exclude from US taxes?
In 2024, you can combine the Foreign Earned Income Exclusion (FEIE) of US$126,500 with the Foreign Housing Exclusion of US$30,800, allowing you to exclude up to US$157,300 from US taxation.
Any income above this amount will still be taxed.
What do you need to qualify for the housing exclusion?
To qualify for the Foreign Housing Exclusion, you must meet one of these tests:
- Bona Fide Residence Test: Establish residency in Brazil for a continuous period that includes an entire tax year. This means showing that Brazil is your main home.
- Physical Presence Test: Be physically present in Brazil (or another foreign country) for at least 330 full days during a 12-month period. This test is solely based on time spent abroad, without considering long-term plans.
What expenses qualify for the foreign housing exclusion?
Certain housing expenses are covered by the Foreign Housing Exclusion, including rent, utilities (except phone bills), property insurance, and residential parking. However, some expenses are not eligible:
- Mortgage Payments: Principal and interest on a mortgage cannot be excluded.
- Luxury Costs: Lavish or excessive expenses are not covered.
- Home Purchase Costs: Expenses like down payments or mortgage interest for buying a home are not eligible.
Can both you and your spouse claim the foreign housing exclusion?
Yes, if both spouses meet either the bona fide residence or physical presence test, they can each claim the foreign housing exclusion. Each spouse must have their own housing expenses and file separate Form 2555 to claim the exclusion.
What if your spouse is not a US citizen?
If your spouse is not a US citizen or green card holder, they cannot claim the foreign housing exclusion. However, if you file jointly and your spouse elects to be treated as a US resident, they may qualify.
If you file separately, only the US citizen or resident spouse can claim the exclusion, and only their share of the expenses can be excluded.
Can you claim other deductions along with the Foreign Housing Exclusion?
Yes, you can claim other deductions in addition to the Foreign Housing Exclusion. For example, you can also use the Foreign Earned Income Exclusion (FEIE) to further reduce your taxable income.
You may also qualify for other deductions, like student loan interest or retirement contributions. It is important to understand how these deductions work together to maximize your tax savings.
What if your housing expenses are higher than the exclusion limit?
If your housing expenses exceed the IRS limit for the Foreign Housing Exclusion, you cannot exclude the additional amount from your taxable income. The portion above the limit will be taxed, which means some costs may still be subject to US taxes.
Can you make changes if you forget to claim the exclusion?
If you forget to claim the Foreign Housing Exclusion, you can amend your tax return using Form 1040-X, the Amended US Individual Income Tax Return.
You generally have up to three years from when you filed the original return or two years from when you paid the tax (whichever is later) to correct it. It’s a good idea to consult with a tax professional to ensure that you include all necessary documentation when amending your return.
