U.S. TAX GUIDE IN BRAZIL
How does the Foreign Housing Exclusion work in Brazil?
If you’re living in Brazil, you can use the Foreign Housing Exclusion to deduct some of your housing expenses.
These expenses include rent, utilities, household repairs, and even residential parking. However, there’s a catch: the IRS sets a maximum limit on how much you can exclude based on the city you live in.
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What are the Foreign Housing Exclusion limits?
It depends on your specific location. For example, in Sao Paulo, Brazil, the IRS has determined that the maximum exclusion amount is around US$56,600.
But before you can claim this amount, you must subtract the base amount, which the IRS considers the minimum someone would typically spend on housing in the United States.
The base amount for 2024 is US$19,200. If you spend US$50,000 on housing, you can only exclude the US$30,800 from US income tax, because we have to deduct $19,200 first, and then you can claim the difference.
How do I claim the Foreign Housing Exclusion?
To claim the Foreign Housing Exclusion, you will need to complete and submit IRS Form 2555 along with your US tax return (Form 1040).
- Determine Eligibility: First, ensure you meet the eligibility requirements by either passing the bona fide residence test or the physical presence test.
- Fill Out Form 2555:
- Part I: Provide your personal information and details about your foreign residence or physical presence.
- Part VI: This section is where you calculate your foreign housing exclusion. You’ll need to list your eligible housing expenses (such as rent, utilities, and insurance) and determine if any of these expenses exceed the IRS-provided limits.
- Part VII: If you are also claiming the Foreign Earned Income Exclusion, you will calculate and report that here.
- Attach Form 2555 to Your Tax Return: Once completed, attach Form 2555 to your Form 1040 when filing your taxes.
- Submit Your Tax Return: Ensure that your tax return is filed by the due date, typically April 15, or June 15 if you are living abroad. You can also request an extension if needed.
- Keep Records: Maintain detailed records of your housing expenses and proof of your residency status, as the IRS may request documentation to verify your claim.
How much can I exclude in total?
In this scenario, your Foreign Earned Income Exclusion of US$126,500 can be combined with the US$30,800 Foreign Housing Exclusion, allowing you to exclude up to US$157,300 of income from US taxation.
However, any income you earn above this amount would still be subject to US taxes.
What are the eligibility requirements for the Foreign Housing Exclusion in Brazil?
First, you can be eligible under the bona fide residence test, you must have established a residence in Brazil for an uninterrupted period that includes an entire tax year.
This test is less about strict time requirements and more about your intentions, making it your primary residence.
It’s important to remember that simply staying in Brazil does not automatically qualify you as a bona fide resident; you must demonstrate that your primary residence is in Brazil.
The other way is the physical presence test; you must be physically present in Brazil (or another foreign country) for at least 330 full days during any consecutive 12-month period.
Unlike the bona fide residence test, the physical presence test is based strictly on the number of days spent abroad, regardless of your intention to make Brazil your primary home.
What does the Foreign Housing Exclusion exclude?
Although the Foreign Housing Exclusion allows you to exclude certain housing costs from your taxable income, it does not cover all types of expenses.
Eligible expenses typically include rent, utilities (excluding telephone charges), and other housing-related costs like property insurance and residential parking.
However, to name a few, it excludes:
- Mortgage Payments: Principal and interest on mortgage payments are not eligible.
- Lavish or Extravagant Expenses: Excessive costs that are considered luxurious or extravagant under IRS guidelines.
- Costs for Purchased Property: The exclusion does not apply to expenses related to purchasing a home, such as down payments or mortgage interest.
Can both spouses claim the foreign housing exclusion?
Yes, both spouses can claim the Foreign Housing Exclusion.
However, each spouse must independently qualify for the exclusion by meeting either the bona fide residence test or the physical presence test.
Additionally, each spouse must have separate foreign housing expenses and must file their own Form 2555 to claim the exclusion.
What if my spouse is non-American?
If your spouse is not a US citizen, resident, or green card holder, they cannot claim the Foreign Housing Exclusion.
The exclusion is only available to US citizens who meet the eligibility criteria.
However, if you file jointly and your spouse has elected to be treated as a US resident for tax purposes, then they may be able to claim the exclusion as well, provided they meet the necessary requirements.
When filing separately, only the US citizen or resident spouse can claim the exclusion. If you and your non-American spouse share housing expenses, only your portion of the expenses can be claimed under the exclusion.
Is the Foreign Housing Exclusion different in other parts of Brazil?
Yes, the Foreign Housing Exclusion amount varies depending on where you live in Brazil. For example, Sao Paulo has a specific exclusion limit, but other cities might have different limits. If you live outside Sao Paulo, you would generally use the base rate set by the IRS unless specific guidance is provided for your city.
