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March 5, 2020
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Can I claim the Foreign Housing Exclusion but NOT Foreign Income Exclusion? I contributed to a Roth IRA so I can't exclude my foreign income, as it's my only income.

  • March 5, 2020
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Turbotax seems to only allow me to answer questions about Housing Exclusion if I'm also applying for the Foreign Income Exclusion. I understand I can't contribute to a Roth IRA if I don't have taxable income, so I can't claim the Foreign Income Exclusion. However, I'd like to claim the Foreign Housing Exclusion if possible.
Best answer by SusanY1

Thank you for your patience and for this question.  After some research, I did find that this is allowed.   My apologies for the incorrect initial answer.  

 

TurboTax does not have a way to do this our online software or in the interview mode of the program, but you can do this via an override on the form itself.   

 

To do this using the desktop software (CD or download version), enter all of your information as if you are going to exclude all of the income using the Foreign Earned Income Exclusion and the Housing Exclusion.  

 

Then switch to the Forms mode by clicking on the Forms icon in the upper right of the program.

 

Find Form 2555, p. 3 in the list of forms on the left.  Right-click on Line 42 to override the amount of the Foreign Earned Income Exclusion and type 0.  This will still transfer the housing exclusion to Line 8 of Schedule 1 as a negative income adjustment.  

 

Overrides in the software do disqualify the return from electronic filing, so you will need to print this return and mail it in for processing. 

 

However, this will allow you to have the earned income needed to permit your Roth IRA contribution and does appear to be permitted according to both the form instructions and IRS Publication 54.

 

So, yes, you can simply fill in the Housing Exclusion section of Form 2555 and take only that exclusion on your tax return and report your income on your tax return. 

 

Thank you again for this question and for allowing me some time to get the right answer to you.  

1 reply

SusanY1
March 5, 2020

No, you can only claim the foreign housing exclusion as part of the foreign earned income exclusion.  Do you pay tax in your country of residence?  Have you considered using the foreign tax credit instead of excluding your income so that you would then have earned income to allow your contribution to the Roth?  

 

CAUTION:  If you elect to switch to the Foreign Tax Credit, and you have taken the Foreign Earned Income Exclusion in prior years, this amounts to revoking that exclusion which bars you from being able to take the exclusion again for a period of five years without first seeking permission from the IRS.  Permission from the IRS requires a Private Letter Ruling, which has a filing fee of $2,000. 

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March 6, 2020

Thank you very much for your response. Unfortunately, I can not take the tax credit because I am exempt from paying taxes in the foreign country. On Form 2555, Part VI says Taxpayers Claiming the Housing Exclusion and/or Deduction and part VII says Taxpayers Claiming the Foreign Earned Income Exclusion. Can I not simply complete Form 2555 and fill out Part VI but not Part VII, so that I can claim the Foreign Housing Exclusion and not the Foreign Income Exclusion?

SusanY1
March 6, 2020

I am taking some time to research this further for you, and I will get back to you as soon as possible.  From looking at it, it appears that perhaps you can but I need to look a little more closely.

 

Once I am sure, I also need to determine how to make this work with the TurboTax software.  

 

Give me some time with this, and I will let you know what I find out!

 

 

 

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