Living abroad as a self-employed U.S. expat comes with unique financial benefits, one of which is the Foreign Housing Deduction. This deduction can significantly lower your taxable income by allowing you to deduct certain housing costs from your earnings. This guide will provide a clear and concise understanding of how the Foreign Housing Deduction works, who qualifies, and how to maximize your tax savings.

WHAT IS THE FOREIGN HOUSING DEDUCTION?
The Foreign Housing Deduction allows self-employed expats to deduct foreign housing expenses from their gross income. Unlike the Foreign Housing Exclusion, which applies to employer-provided amounts, the deduction is specifically for those with self-employment income. This can help reduce your tax liability and make living abroad more affordable.

WHO QUALIFIES?
To qualify for the Foreign Housing Deduction, you must:

Have self-employment income.
Have a tax home in a foreign country.
Pass either the bona fide residence test or the physical presence test for an uninterrupted period that includes an entire tax year.
Bona Fide Residence Test: You must be a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year. This means you must establish a residence in the foreign country and intend to live there for a substantial period.
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