The U.S. IRS has issued Notice 2023-26, which provides the adjustments to the limitation on housing expenses for purposes of section 911 of the Internal Revenue Code for 2023. These adjustments are made on the basis of geographic differences in housing costs relative to housing costs in the United States. Section 911 allows a qualified individual to elect to exclude from gross income the foreign earned income and to exclude or deduct the housing cost amount of such an individual.
The housing cost amount is generally the total of the housing expenses for the taxable year minus a base housing amount. The base housing amount is equal to 16% of the maximum foreign earned income exclusion amount (computed on a daily basis), multiplied by the number of days in the applicable period that fall within the taxable year, or USD 19,200 (USD 120,000 x .16) for 2023, assuming that the entire taxable year of a qualified individual is within the applicable period.
The housing expense amount is similarly limited based on a percentage of the maximum foreign earned income exclusion amount. The limit on housing expenses equals 30% of the maximum foreign earned income (computed on a daily basis), multiplied by the number of days in the applicable period for which the taxpayer is a qualified individual, or USD 36,000 (USD 120,000 x .30) for 2023, assuming that the entire taxable year of a qualified individual is within the applicable period. However, the percentage for determining the limit on housing expenses may be adjusted, with the resulting values from these adjustments for different countries provided in Notice 2023-26 for 2023, including the full year and daily amounts.
Notice 2023-26 is effective from 1 January 2023, although taxpayers may apply the 2023 adjusted housing limitations for their taxable year beginning in 2022 if the adjusted value for 2023 for a particular country is more favorable (higher) than the value for 2022.
Click the following link for more information on the Foreign Housing Exclusion or Deduction.