Form 2555: Foreign earned income exclusion

[The Real Halloween]

Can housing-related expenses that are not deductible as an itemized deduction (e.g. disallowed foreign mortgage interest and foreign real estate taxes) be used to increase the section 911 foreign housing exclusion or deduction?

TP had a mortgage balance in excess of $1million as of December 31, 2019 and this loan was taken in 2016.

Thank you in advance for your time and comment.

[itonewbie]

Not for mortgage interest.

[The Real Halloween]

@itonewbie I could not find in the f2555 instructions on increasing FEIE with foreign real estate taxes but not allowing mortgage interest.  Could you please shed some lights on this.  Thanks.

[itonewbie]

See §911(c)(3)(A)(ii) for expenses not includable as qualified housing expenses.

[The Real Halloween]

@itonewbie Can you also shed some lights on the code where it also allows foreign real estate taxes to be part of the housing expenses (IRC911(c)(3)(A)(ii)).  Thanks again for your time.

[itonewbie]

911(c)(3)Housing expenses.—

911(c)(3)(A)In general.—The term “housing expenses” means the reasonable expenses paid or incurred during the taxable year by or on behalf of an individual for housing for the individual (and, if they reside with him, for his spouse and dependents) in a foreign country. The term—

911(c)(3)(A)(i) includes expenses attributable to the housing (such as utilities and insurance), but

911(c)(3)(A)(ii) does not include interest and taxes of the kind deductible under section 163 or 164 or any amount allowable as a deduction under section 216(a).

[The Real Halloween]

@itonewbie It seems that as foreign real estate taxes are deductible under IRC164(a)(1), it can not be included as part of the housing expenses under 911(c)(3)(A)(ii).  Please let me have your thought on this.  Thanks.

[itonewbie · Accepted solution]

The statutory language is "of the kind deductible", not deduction allowed.  That makes a difference in legal terms and is what guides judges in their rulings.  There is no ambiguity or gray area in §911 for position taking, if that's what you are thinking.

[The Real Halloween]

@itonewbie Thanks for your valuable comments  will include foreign real estate taxes as part of housing expenses but will exclude mortgage interest from housing expenses.