Digital Nomad
Foreign Earned Income & Housing Exclusion: How the 2026 Adjustments Open Doors for Digital Nomads
Important adjustments to housing exclusions under IRC section 911 allow digital nomads to exclude higher foreign housing costs for 2026—and even apply them retroactively to 2025 in many cases.
By NomadicTax Research Team • 5-8 min read • April 29, 2026
## What’s New for Digital Nomads
The IRS released **Notice 2026-25** to adjust the limits on housing expenses for purposes of the **Foreign Housing Exclusion/Deduction** under IRC section 911. These adjustments are based on geographic differences in housing costs. Key facts:
- For **taxable years beginning on or after January 1, 2026**, digital nomads living abroad in specific high-cost locations will have **higher housing expense limits** than previously allowed. ([irs.gov](https://www.irs.gov/irb/2026-17_IRB?utm_source=openai))
- If your location’s 2026 housing limit is higher than what was allowed for your area in 2025, you **may apply the 2026 limitation to your 2025 return**. ([irs.gov](https://www.irs.gov/irb/2026-17_IRB?utm_source=openai))
## How Calculations Work
- **Base amount**: 16% of the maximum Foreign Earned Income Exclusion ($132,900 in 2026), which equals **$21,264** for a full year. ([irs.gov](https://www.irs.gov/irb/2026-17_IRB?utm_source=openai))
- **Maximum housing expenses** under general rules: 30% of that exclusion (about **$39,870**) unless local cost adjustments (= higher in certain foreign cities). ([irs.gov](https://www.irs.gov/irb/2026-17_IRB?utm_source=openai))
## Examples
- A nomad living in Paris in 2026 might have a local housing limit of \$70,000—which exceeds the standard \$39,870—thus can deduct or exclude up to that higher amount. Plus, if they were paying similarly high rents in 2025, they can use the 2026 numbers when filing that return.
- A remote worker in a relatively low-cost city may see little change, as the adjusted 2026 cap might still equal the standard national limit.
## Actionable Insights
- **Check the IRS table** in Notice 2026-25 to see your city’s adjusted housing expense limitation. Make sure your housing expenses are well documented—leases, utility bills, furniture rental if allowable.
- If filing your 2025 return **after reading these updates**, see if your location qualifies for applying the higher 2026 limits retroactively.
- Keep records of dates abroad—must be a **qualified individual**, i.e. tax home in foreign country, bona fide residence or meeting the 330 full-days rule. Without this, section 911 doesn’t apply.
## Practical Impacts
- Many nomads and expats will see **lower U.S. taxable income** by excluding more housing cost when living abroad.
- Retroactive application may yield **amended returns** or filing 2025 with larger exclusions—and thus a larger refund or lower tax.
- Planning housing arrangements, rental contracts, and documentation will become more important. Some may reexamine which foreign location to base themselves in, based on relative housing limits.
## Summary
With increased housing exclusion limits for 2026 (and possible retroactive use in 2025), foreign residents and digital nomads have a bigger tool to reduce U.S. taxable income tied to foreign living expenses—provided they meet the rules and document thoroughly.