Question

NeNe is an accountant and a U.S. citizen who has accepted a permanent position in Madrid, Spain, for a Spanish financial services company. This year, NeNe spent the entire year working in Madrid. NeNe's employer paid $40,000 of her Madrid housing expenses this year. What amount of the $40,000 housing payments may NeNe exclude

Answer 1

NeNe as a US citizen working abroad may exclude a portion of her $40,000 employer-paid housing expenses in Madrid from her taxable income by using the Foreign Housing Exclusion. The exact amount is calculated based on IRS guidelines, which consider her actual expenses, a base housing amount, and the limit imposed for the location. NeNe must report this on Form 2555 or 2555-EZ attached to her tax return.

Step-by-step explanation:

Understanding the Housing Exclusion for US Citizens Working Abroad

When an American citizen like NeNe works abroad, for example in Madrid, they can take advantage of the Foreign Housing Exclusion, which allows them to exclude a portion of their housing expenses paid by their employer from their taxable income. The exact amount of the housing exclusion varies each year and depends on the location, as the IRS provides a Foreign Housing Exclusion maximum limit. To calculate the correct exclusion amount, NeNe would need to use the IRS guidelines for the year in question.

Generally, the calculation involves finding the difference between the individual's actual housing expenses and a base amount, which is typically 16% of the Foreign Earned Income Exclusion. Any amount above this base housing amount and up to the limit for Madrid can be excluded from NeNe's income. If NeNe's $40,000 housing expense paid by the employer exceeds the calculated eligible exclusion amount, she will only be able to exclude up to the limit and has to include the rest in her taxable income.

To report this exclusion, NeNe would need to fill out Form 2555 or Form 2555-EZ and attach it to her tax return. Remember, the IRS updates exclusion limits annually, so NeNe should check the current year's limit for Madrid. It is also important to note that this information is general, and NeNe should consult a tax professional or the IRS directly for personal tax advice.

Answer 2

Question options:

a) NeNe can exclude all of the housing payment because she worked more than 330 days overseas

b) 16,128

c) 23,872

d) 14,112

e) None of her salary can be excluded from gross income

Answer:

a) NeNe can exclude all of the housing payment because she worked more than 330 days overseas

Step-by-step explanation:

US citizens working and living abroad would still have to remit taxes to the US, albeit with exclusions.

Under US tax law, IRS states that US citizens may deduct/exclude the value of meal and lodging expenses granted to them by the employer. Under the foreign housing exclusion, Nene qualifies for the benefits of housing exclusion because she has a foreign earned income and has lived at least 330 days within a period of 12 consecutive months in the foreign country.