Tax Planning
Mastering the Foreign Earned Income Exclusion in 2026: What U.S. Expats Need to Know
A U.S. taxpayer living abroad may be able to exclude up to $132,900 of foreign earned income in 2026, plus housing costs subject to geographic limits. Here’s how to see if you qualify, how to calculate it, and what to watch out for.
By NomadicTax Research Team • 5-8 min read • August 11, 2026
## What’s New in 2026 for FEIE and Housing Exclusions
- The **Foreign Earned Income Exclusion (FEIE)** for tax year 2026 is **$132,900**, up from $130,000 for 2025 ([irs.gov](https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill?utm_source=openai)).
- The **housing exclusion or deduction**, generally limited to **30% of FEIE**, is capped at about **$39,870** for 2026. The base housing amount (that portion you cannot exceed) is 16%, which equals **$21,264** for a full taxable year abroad ([irs.gov](https://www.irs.gov/irb/2026-17_IRB?utm_source=openai)).
- Notice 2026-25 provides location-specific limits, recognizing cost-of-living differences in foreign cities ([irs.gov](https://www.irs.gov/irb/2026-17_IRB?utm_source=openai)).
## Qualification Rules (who counts, and how)
To claim FEIE or housing exclusion, a taxpayer must be a **“qualified individual”** under Section 911:
- Either a U.S. citizen/resident who meets the **bona fide residence test** — i.e. being a bona fide resident of a foreign country for an uninterrupted full taxable year; or
- A U.S. citizen/resident who meets the **physical presence test** — being present abroad for **330 full days out of any consecutive 12-month period** ([irs.gov](https://www.irs.gov/pub/irs-pdf/p4012a.pdf?utm_source=openai)).
There’s also relief if you had to leave a foreign country due to adverse conditions — war, natural disaster, etc. The IRS has identified certain countries and effective dates for these exceptions for **tax year 2025** in Rev. Proc. 2026-13 ([irs.gov](https://www.irs.gov/pub/irs-irbs/irb26-13.pdf?utm_source=openai)).
## Calculating FEIE and Housing Costs: Example
If in 2026 you earn **$150,000** in salary abroad, and your housing expenses are **$45,000**, plus your self-employment net income (if applicable):
1. Maximum FEIE for 2026 is $132,900. You can exclude up to that amount if your foreign earned income/year qualifies.
2. For housing exclusion:
- Base housing amount = 16% × $132,900 = **$21,264**
- Maximum housing expenses generally allowed = up to 30% × $132,900 = **$39,870**
- Housing costs beyond that amount may not qualify unless you’re in a high-cost city where the IRS adjusts the limit under Notice 2026-25.
3. Expenses directly related to producing foreign income or self-employment tax deductions must be adjusted proportionally to excluded income if gross foreign income exceeds FEIE threshold ([irs.gov](https://www.irs.gov/individuals/international-taxpayers/figuring-the-foreign-earned-income-exclusion?utm_source=openai)).
## Procedural Points & Common Pitfalls
- Claiming FEIE and/or housing deduction means **you cannot also take foreign tax credits or deductions** for exclusions you’ve already claimed: any tax credit must apply only to income not excluded ([irs.gov](https://www.irs.gov/individuals/international-taxpayers/choosing-the-foreign-earned-income-exclusion?utm_source=openai)).
- You must make the claim on **Form 2555** by filing the return by the due date (or a timely extension), or amend a timely return. If you revoke the election, you need IRS approval if within five years ([irs.gov](https://www.irs.gov/individuals/international-taxpayers/revoking-your-choice-to-exclude-foreign-earned-income?utm_source=openai)).
- Watch for changes in your residency status, employer situation, or in the foreign country legal status — these can affect qualification.
## Actionable Tips for Expats
- Maintain solid records of **dates abroad**, “tax home” status, and housing expenses by location.
- Before moving to or during a placement abroad, check whether the location’s housing limit in **Notice 2026-25** has been raised due to higher cost of living.
- Plan income timing — delays in payment may shift eligible amounts between tax years.
- When in doubt about revoking or making the FEIE election, consider consulting professional international tax counsel.
**Bottom line**: For tax year 2026, U.S. expats can exclude roughly $132,900 in foreign earned income, with additional housing exclusion depending on location. With proper planning, they can maximize benefits while avoiding common traps.