Digital Nomad
How Foreign Housing Expense Limits Under Section 911 Are Changing for Digital Nomads
Recent IRS changes allow many who live abroad to use higher housing expense limits for 2026—and even retroactively for 2025—making foreign income exclusion planning more generous for some digital nomads.
By NomadicTax Research Team • 5-8 min read • April 28, 2026
## What’s New Under Notice 2026-25
The IRS issued **Notice 2026-25**, adjusting the housing expense limitations that digital nomads and other US taxpayers living abroad can use under section 911 for the 2026 tax year. Importantly, individuals who incurred housing expenses abroad in 2025 may opt to use the 2026 limits if they are higher for their location. ([irs.gov](https://www.irs.gov/pub/irs-drop/n-26-25.pdf?utm_source=openai))
Key numbers:
- **Base housing amount** (the minimum deduction before housing expenses count) in 2026 is 16% of the maximum foreign earned income exclusion ($132,900), or **$21,264** if the individual’s full year qualifies. ([irs.gov](https://www.irs.gov/pub/irs-drop/n-26-25.pdf?utm_source=openai))
- **General housing expense limit** (amount above which you can’t exclude/deduct) is 30% of that exclusion, or **$39,870** for full taxable years in 2026. ([irs.gov](https://www.irs.gov/pub/irs-drop/n-26-25.pdf?utm_source=openai))
## Who Benefits
- **Digital nomads** living abroad in high‐cost locations who often have substantial rent, lodging, or utility expenses. A location where 2026 limits exceed 2025 can yield bigger tax relief.
- Nomads with qualifying periods spanning both 2025 and 2026 may retroactively apply higher limits, simplifying compliance if the 2026 figures improve their deductions. ([irs.gov](https://www.irs.gov/irb/2026-17_IRB?utm_source=openai))
## Actionable Steps for Nomads
1. **Check if your housing location is listed** in Notice 2026-25. If yes, compare the 2026 limit for that area to what the 2025 table provided. If 2026 is higher, you can elect to use that amount for 2025.
2. **Gather your housing expense documentation**—rent, utility bills, lease agreements. Keep records splitting expenses during the qualifying period.
3. **Fill out IRS Form 2555** using the updated limits. Use the “Limit on Housing Expenses Worksheet” line 29b with Notice 2026-25’s limits instructed in the 2025 or 2026 version. ([irs.gov](https://www.irs.gov/instructions/i2555?utm_source=openai))
4. **Plan ahead**: If you're moving or anticipate rising housing costs, reviewing these tables annually can help in logistics, budgeting, and tax planning.
## Example Scenario
- You lived in Lisbon, Portugal, in 2025 and your housing costs were high. 2025’s limit for Lisbon was $X (from Notice 2025-16). Notice 2026-25 shows Lisbon’s adjusted limit for 2026 is $Y, which is higher. You may apply the 2026 limit to your 2025 expenses—perhaps increasing your deduction threshold by thousands.
- For someone who qualifies full year abroad, with lower core rental prices, the difference may be smaller—but small increments matter when optimizing taxes.
## Caveats & Compliance Tips
- You must meet the section 911 requirements: your tax home abroad, presence or bona fide residence tests, properly submit Form 2555.
- Be precise with dates: only the qualifying period (days you lived abroad) counts toward prorated limits if not full year.
- Maintain thorough documentation in case of IRS audit.
**Bottom line**: These changes make exclusion/deduction benefits more favorable, particularly for digital nomads in expensive foreign locales. Understanding and using them properly can lead to meaningful tax savings.