Digital Nomad

Foreign Earned Income Exclusion & Housing Deductions: What Digital Nomads Need to Know for 2025–2026

Inflation adjustments and geographic-based housing limits make the FEIE and housing exclusions/deductions changing—here's how nomads can plan smartly abroad.

By NomadicTax Research Team • 5-8 min read • August 18, 2026

## FEIE & Housing Basics Refresher - If you're a U.S. citizen or resident alien living and working abroad, you may use the **Foreign Earned Income Exclusion (FEIE)** under IRC §911 to exclude a portion of your foreign earned income from U.S. federal income tax. This requires a tax home abroad and meeting either the *bona fide residence* or *physical presence* test. ([irs.gov](https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion?utm_source=openai)) - In addition to FEIE, you might qualify for the **Foreign Housing Exclusion or Deduction** for housing expenses above a base amount. ([irs.gov](https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion?utm_source=openai)) ## 2025–2026 Inflation-Adjusted Amounts - **FEIE amounts**: $130,000 for tax year **2025**, increasing to **$132,900** for tax year **2026** per qualified person. ([irs.gov](https://www.irs.gov/individuals/international-taxpayers/figuring-the-foreign-earned-income-exclusion?utm_source=openai)) - **Housing cap**: For 2026, the general limit on housing expenses is **30%** of the FEIE amount, i.e. **$39,870**. Base housing amount is 16% of FEIE ($21,264 for full year). Adjustments are based on geography. ([irs.gov](https://www.irs.gov/irb/2026-17_IRB?utm_source=openai)) ## Waivers for War, Civil Unrest & Adverse Conditions - Revenue Procedure 2026-16 has added **Haiti, Ukraine, Democratic Republic of the Congo, South Sudan, Iraq, Lebanon, and Mali** to the list of countries for which time-requirements (for FEIE tests) may be **waived** for 2025 because of war or other adverse conditions. ([irs.gov](https://www.irs.gov/pub/irs-irbs/irb26-13.pdf?utm_source=openai)) ## Practical Tips for Digital Nomads 1. **Plan qualifying days carefully**: If you qualify under the *physical presence test*, 330 full days in a 12-month period matter; count them rigorously. Bona fide residence requires an uninterrupted period that includes an entire tax year. ([irs.gov](https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-bona-fide-residence-test?utm_source=openai)) 2. **Track housing expenses**: Rent, utilities, etc., above the base housing amount may qualify for exclusion or deduction—but only up to geographic limits. Keep hotel or long-stay apartment receipts, lease agreements, and proof of expenses. Use 2026 map of limits if living in high-cost areas. ([irs.gov](https://www.irs.gov/irb/2026-17_IRB?utm_source=openai)) 3. **Leverage waivers**: If you live in one of the waiver countries and have missed physical presence or bona fide residence test days due to conflict, you may qualify for relief. Ensure you document conditions in that country. ([irs.gov](https://www.irs.gov/pub/irs-irbs/irb26-13.pdf?utm_source=openai)) 4. **Check for interaction with tax treaty**: If you’re a U.S. resident alien with citizenship/nationality in a treaty country, some treaty provisions may affect eligibility. Always review Publication 54 for updates. ([irs.gov](https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-bona-fide-residence-test?utm_source=openai)) ## Example Calculation (2026) > Maria works remotely while based in Lisbon for all of 2026 and meets FEIE & bona fide residence tests. She earns $150,000 foreign wages and has housing costs (rent + utilities) of $40,000. Exclusion = $132,900 FEIE + housing exclusion of ($40,000 − base $21,264) = approx **$18,736**, subject to her qualifying period. So total excluded income = **$151,636** (cap limited by rules). Taxable income then calculated on remainder. ## Common Pitfalls to Watch Out For - Claiming FEIE without meeting test dates ➔ can lead to revocation and penalties. ([irs.gov](https://www.irs.gov/individuals/international-taxpayers/choosing-the-foreign-earned-income-exclusion?utm_source=openai)) - Forgetting that FEIE doesn’t reduce your **self-employment tax** base. You still pay SE tax in full. ([irs.gov](https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion?utm_source=openai)) - Dual-claims to foreign tax credit and deduction for income that you excluded – not allowed. ([irs.gov](https://www.irs.gov/individuals/international-taxpayers/choosing-the-foreign-earned-income-exclusion?utm_source=openai)) For global workers, these changes make planning essential—don’t skip your records, your criteria, or your calculations.