US IRS Hong Kong Releases 2019 Foreign Foreign Housing Adjustments

The post gives you the detailed insight of the notice issued on March 28, 2019, which provide adjustment to the limitation on housing expenses for purposes of section 911 of the Internal Revenue Code (IRC). The notice is issued by US IRS Hong Kong to update the list of specific locations with high housing costs relative to the costs in the United States.

Individual Qualified For Foreign Housing Adjustment

Under section 911 of the US Internal Revenue Code, only a qualified individual whose tax home is in a foreign country, and who meet specified requirements as to the residence in a foreign country, may elect to exclude certain amounts from foreign earned income and foreign housing costs from US tax. The term “housing cost” amount is the total of housing expenses for the taxable year minus a base housing amount.

The maximum amount which is decided to be excluded as per the notice is $105,900 for 2019. The housing cost exclusion is generally equal to the amount of foreign housing expenses to the extent taxpayer exceed the base amount equal to 16 percent of the foreign earned income i.e. $105,900*16% = $16,944 for 2019. Limitation is equal to the 30 percent of the foreign earned income exclusion, i.e.  $105,900 * 30% = $31,770 for 2019.

However, for certain a foreign location where there is a high housing cost has been reported the limitation of 30% can be accordingly adjusted by the US Department of the Treasury. To overcome these complications, one can better hire US tax services Hong Kong to get business on the right track and avail deduction.

Notice 2019-24, Directs a Table of Adjusted Limitations

The IRS has also attached a table in the notice that identifies locations within foreign countries with relatively expensive housing cost compared to the United States. The table provides an adjusted limitation to the elected individual (who qualifies to claim the IRC section 911exclsuions for 2019) for housing expenses.

It simply means that the qualified individual incurring the expensive housing expenses in one or more of the costlier locations (as identified in the table for 2019) is eligible to adjust the limit provided (with respect to the  $31,770) in determining the excluded housing cost amount. Therefore, putting it into simple words, a qualified individual who incurs housing expenses in the locality listed in the table (issued by the IRS in the notice) is subject to the maximum limit of $31,770 for 2019.

Permit to Apply 2019 Adjusted Housing Expense Limitation To 2018 Tax Year

IRC section 4 of the notice 2019-24 provides that in cases where the 2019 housing limitation amounts for some locations are higher than those provided in the table if 2018, then in such case the taxpayers are allowed to use the higher 2019 housing limitation amount on their 2018 income tax returns.

Also, the notice of the IRS advises that the IRS and the treasury department anticipate that the future housing expense limitation and adjustment will follow almost the same procedure. For example, when the foreign housing limitation for 2020 issued, it is expected that the taxpayers will be allowed to apply those adjusted limitations to the 2019 tax year. As it has also done in the past few years, the IRS provides a feasible option to use the 2019 adjusted limitation amount to 2018 if they’re relatively higher.