Digital Nomad
Digital Nomads: Maximizing the Foreign Earned Income Exclusion with the New Section 911 Housing Adjustments
Recent Treasury and IRS updates to housing‐expense limits under Section 911 offer digital nomads a chance to exclude more of their foreign housing costs—but only if they navigate eligibility and location rules carefully.
By NomadicTax Research Team • 5-8 min read • May 24, 2026
## What’s New Under Notice 2026-25 for Digital Nomads
Notice 2026-25, issued by the IRS, updates the **foreign housing expense limits** for tax year 2026 under Section 911 of the Internal Revenue Code. These limits define how much housing cost you can exclude from U.S. gross income if your tax home is abroad and you meet certain bona fide residence or physical presence tests.([irs.gov](https://www.irs.gov/irb/2026-17_IRB?utm_source=openai))
Key figures for 2026: the base housing amount is **$21,264**, the usual statutory maximum is **$39,870**, and for many high‐cost foreign locations, adjusted limits may be **higher** than that statutory cap. If your foreign housing cost in a designated high‐cost location is more than the base amount, the exclusion may pick up all costs above the base up to the local adjusted limit.([kpmg.com](https://kpmg.com/xx/en/our-insights/gms-flash-alert/2026/flash-alert-2026-090.html?utm_source=openai))
## Why This Matters for Digital Nomads
- If you live or work in a foreign location recognized for having high housing costs, you may now deduct housing expenses up to that updated higher limit. That can **significantly reduce your U.S. taxable income**.
- Even if expenses are high, you must still **meet eligibility**: tax home abroad, physical presence (330 days during a 12-month period) or bona fide residence test.
- For 2025 returns, if the 2026 limits in your location are higher than 2025’s, you can **elect to apply the 2026 limit** to your 2025 return.([irs.gov](https://www.irs.gov/irb/2026-17_IRB?utm_source=openai))
## Practical Steps to Make It Work
- Keep detailed records of your foreign housing costs: rent, utilities, insurance, maintenance—any expense that qualifies under Section 911.
- Check if your foreign location is listed in the IRS table for high housing cost localities in Notice 2026-25. If so, use the adjusted limit for your calculation.
- Decide whether to use 2026 limits for 2025 return if advantageous.
- Be precise about defining your tax home and meeting the physical presence or bona fide residence test; failure on those disqualifies the exclusion.
- Use IRS Publication 54 and Section 911 guidance, or consult a tax professional familiar with nomad tax compliance.
## Example Scenario
Say you are a U.S. citizen living in Geneva in 2025, with $60,000 in qualifying housing expenses. The statutory limit for most locations in 2026 is $39,870, and for Geneva, Notice 2026-25 increases that cap—let’s assume to **$60,000** depending on the adjusted local limit.
- Base housing amount remains $21,264.
- If Geneva’s adjusted limit is indeed $60,000, then you may exclude **housing costs minus base amount**, i.e. $60,000 − $21,264 = **$38,736** from gross income.
If Geneva’s limit were lower—say $45,000—you would use that: $45,000 − $21,264 = **$23,736**.
## Common Pitfalls to Avoid
- Using the Section 911 exclusion **without properly establishing** your foreign tax home or qualifying presence abroad.
- Assuming adjusted limits apply universally—many locations are not adjusted and remain at the statutory maximum.
- Forgetting to **make the election** to use 2026 limits on a 2025 return if beneficial.
- Ignoring that only housing cost amounts **above** the base housing figure qualify, and all rules must be supported with documentation.
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With accurate planning around these new Section 911 housing adjustments, digital nomads can optimize their tax outcomes, excluding more of their housing expenses from U.S. tax—if they act carefully, document thoroughly, and confirm eligibility.