The IRS Bona Fide Residence Test an Foreign Housing Exclusion

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Qualifying for the Bona fide residence test and foreign housing exclusion

In an earlier video, I discussed the benefits of the foreign income exclusion. Now in order to qualify for that and the foreign housing exclusion, you must satisfy something known as the IRS Bona Fide residence test. Hi I’m Anthony Parent of IRSMedic and in this video I will show how the bona fide residence test is satisfied and I will also be talking about the foreign housing exclusion so that your IRS tax bill will be as low as allowed by law.

There are a number of factors that the IRS uses to determine if you have a bona fide residence in another country so that you are eligible to claim the Foreign Earned Income Exclusion. According to the IRS:
 
“You meet the bona fide residence test if you are a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.”
 
They go on to say: “Questions of bona fide residence are determined on a case-by-case basis, taking into account such factors as your intention or the purpose of your trip and the nature and length of your stay abroad. You must show the Internal Revenue Service (IRS) that you have been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. The IRS decides whether you qualify as a bona fide resident of a foreign country largely on the basis of facts you report on Form 2555, Foreign Earned Income. “
 
Facts that the IRS will use to determine if you are a bona fide resident include:
 
The reason for you staying abroad. 
The intended length of your stay.
Whether your stay was uninterrupted.
Whether your stay lasted an entire tax year.
Whether you are subject to the income tax laws of the foreign country.
If you have a domicile in the U.S. 
So do you see - how much gray area there is? This should be a simple rule - but nothing is ever quite simple with the IRS - this is why taxpayers and tax professionals have a hard time keeping up with the complicated rules, that always seem to change. To something even more complicated.  
Understanding the Foreign Housing Credit
 
The Foreign Earned Income Exclusion is not the only benefit you can get from living in another country. The IRS also allows you to deduct part of your housing costs while overseas. You can typically exclude anything in excess of 16 percent of the total amount of the Foreign Earned Income Exclusion that you have claimed.
 
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[DroogOz]

Thanks for the video. Does this also apply for people who use the foreign tax credit? I would like some content on what the tax obligations are for renunciation. Cheers

[eltabeb]

Does this apply for employer paid housing (employer is paying for the rent and bills)

[donttread]

Being a dual citizen (US/CA) and making $100, 000 CAD per year self-employed (Canadian sourced) as a sole-prop, would it be more tax advantageous to live in Michigan or Ontario? Things come to mind, non-Canadian resident = 25% withholding on net income, but paying lower Michigan / US federal income tax and being obligated to pay FICA taxes. Not to mention health insurance costs. Would appreciate if you could make a video on this