When U.S. residents make international moves for work, there's one part of the country that goes with them. They remain U.S. taxpayers, filing federal tax returns on the on their overseas earnings.
Uncle Sam, however, does provide some tax breaks to his citizens living and working abroad. Their filing deadline is June 15. Thanks to tax treaties, globally peripatetic taxpayers also get certain foreign earned income exclusions and/or foreign income tax credits.
These exclusion amounts also are affected by the cost of living, as noted in Part 8 of the ol' blog's 2023 annual inflation and taxes series.
Those annual adjustments also include the cost of finding an acceptable flat, appartement, villa, casa, haus, or any other dwelling in a place with a language beyond my rudimentary translation skills.
Annual housing abroad adjustments: Since costs of living vary widely, the U.S. Department of State tracks the worldwide amounts and grants an allowance to employees officially stationed in a foreign location where the cost of living, exclusive of quarters costs, is substantially higher than in Washington, D.C.
The IRS follows this list and, based on the housing data, allows U.S. taxpayers in those designated locales to exclude from their income (or deduct, if self-employed) an amount greater than the basic housing amount, which for 2023 is $36,000.
This announcement of a bigger housing tax benefit typically is made months after the tax agency's typical fall release of its general inflation figures. Most of those 2023 numbers were released last fall, and are part of the ol' blog's aforementioned annual inflation adjustments series; shameless plug alert, Part 1 has a full directory).
The IRS released this year's allowances for higher housing costs on March 14 in Notice 2023-26, Determination of Housing Cost Amounts Eligible for Exclusion or Deduction for 2023.
Added international housing adjustments: My previously mentioned prior tax inflation series post — final, I promise, shameless plug: Inflation adjustments for 2023 taxes that apply to Americans abroad — goes into more detail on the basic international housing tax exclusion or deduction.
But if you live in one of the more expensive locales cited in IRS Notice 2023-26, you get more than the basic annual residential allowance. Again, that's $36,000 for 2023.
Of course, since I've dreamed of living in Italy even before Stanley Tucci's magnificent food/travelogue series (some streamer please pick it up for seasons 3 and beyond!), I scrolled down the latest table to see which Italian cities are considered overly expensive vis-à-vis U.S. taxpayers living in them.
Six locales in that Mediterranean peninsula nation get higher housing allowances. They are:
Genoa at $41,800
Naples at $45,300
La Spezia at $40,400
Rome at $44,200
Milan at $66,000
Vicenza at $36,900
If you're already in or going to Hong Kong, China, you get a housing allowance of $114,300. You get $77,000 if moving to or in Tokyo, Japan. Geneva, Switzerland, expatriates get $98,300.
And while relocations are not going to happen due to Russia's hostile move on Ukraine, you would get $108,000 for living in Moscow.
It's a big old world out there, so chances are your work could take you someplace other than Italy or those four just-cited higher cost of living locales.
In that case, check out the notice's full table (more than five pages in the IRS notice) to see how the housing costs, and their tax considerations, in your potential new home compare to U.S. residential expenses.
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- April 18 also is deadline to file FBAR foreign assets report