Digital Nomad
Maximizing the Foreign Housing Exclusion: What Digital Nomads Need to Know in 2026
U.S. citizens living abroad can leverage the higher 2026 foreign housing cost limits and base housing amounts to lower taxable income—but location matters.
By NomadicTax Research Team • 5-6 min read • August 15, 2026
## Foreign Housing Exclusion for 2026: Key Numbers for Nomads
For tax year 2026, the maximum **foreign earned income exclusion (FEIE)** has increased to **$132,900**, up from $130,000 in 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))
Under section 911(c), the **base housing amount**, which is deducted from your housing expenses, is 16% of FEIE. For a full taxable year, that comes to **$21,264**. Housing expense deductions are generally limited to **30%** of FEIE (so about **$39,870**) before geographical adjustments. ([irs.gov](https://www.irs.gov/irb/2026-17_IRB?utm_source=openai))
Many costly overseas locations permit higher housing expense deductions due to local cost-of-living variations. Notices like **Notice 2026-25** list the adjusted limits. For example, in 2026:
- Luanda, Angola: Limit up to **$84,000/yr** (daily $230.14)
- Sydney, Australia: ~$65,600/yr (daily $179.73)
- Buenos Aires, Argentina: ~$56,500/yr (daily $154.79) ([irs.gov](https://www.irs.gov/pub/irs-irbs/irb26-17.pdf?utm_source=openai))
## Qualifying Tests: Bona Fide Resident vs. Physical Presence
You must meet one of two tests:
| Test | Requirements |
|---|---|
| **Bona Fide Resident** | Meaningful residence in foreign country for an uninterrupted period that includes a full ***calendar year***. Intent, ties to U.S./local, tax treaties affect this. ([irs.gov](https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-bona-fide-residence-test?utm_source=openai)) |
| **Physical Presence** | Must be present in foreign countries at least **330 full days** during any **12-month consecutive period**. ([irs.gov](https://www.irs.gov/irb/2026-17_IRB?utm_source=openai)) |
## Actionable Tips for Digital Nomads
- **Track your days carefully.** Partial days, travel between continents, or unexpected U.S. stays can knock you off either test.
- **Review housing contracts**, especially if you pay short-term or rentals, utilities separately, or include pest control, furniture, etc.—only *qualifying* housing expenses allowed.
- **Check location-specific limits.** If you’re in a high-cost city, your housing cap may be much higher than the generic cap. Use published tables. ([irs.gov](https://www.irs.gov/pub/irs-irbs/irb26-17.pdf?utm_source=openai))
- **File Form 2555** to claim FEIE and housing deduction or exclusion. Even excluded income must be reported. ([irs.gov](https://www.irs.gov/individuals/international-taxpayers/figuring-the-foreign-earned-income-exclusion?utm_source=openai))
## Example Scenario
Maria, a U.S. citizen, works remotely from Lisbon all of tax year 2026. She meets the bona fide resident test. Her housing expenses for rent, utilities, and internet are **$30,000**. The base housing amount is **$21,264**. So her housing **housing cost amount** eligible for exclusion = **$30,000 − $21,264 = $8,736**. Plus she could apply the full FEIE of **$132,900**, assuming her foreign income exceeds that amount.
## Bottom Line
Digital nomads can significantly reduce U.S. taxable income via FEIE and foreign housing deductions. But success depends on proving test qualification, choosing overseas locations wisely, and maintaining accurate expense records. Working closely with an international tax advisor can help avoid pitfalls and optimize exclusions under increased 2026 thresholds.