Unlock tax savings abroad: why Form 2555 matters

Understanding the foreign earned income exclusion and its application is crucial because it involves more than just filling out a form; it requires a deep knowledge of eligibility criteria, including the bona fide residence and physical presence tests.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.   

Q: Is the foreign earned income exclusion amount in U.S. dollars?

A: Yes, the foreign earned income exclusion is calculated in U.S. dollars and is adjusted annually for inflation.

Q: Is rental income considered for the foreign earned income exclusion?

A: No, foreign rental income cannot be excluded under the foreign earned income exclusion as it is considered passive income, not earned income.

Q: Do you need to pay taxes in a foreign country to meet the bona fide residence test?

A: Not necessarily. No single factor is controlling. All factors must be considered to determine if the taxpayer qualifies.

Q: What if someone owns a home in the U.S. but rents it out?

A: One of the requirements for the foreign earned income exclusion is that the taxpayer’s tax home is in a foreign country. Owning a home in the U.S. does not automatically establish an abode in the U.S., especially if it is rented out.