As an accountant to U.S. citizens or resident aliens of the United States living abroad, we have come across almost every question and answer imaginable when it comes to US tax. In order to qualify for the Foreign Earned Income Exclusion, the foreign housing exclusion or the foreign housing deduction, expats must own a tax home in a foreign country.
A tax home can be identified case-by-case. The IRS audits taxpayers claiming the foreign eared income exclusion frequently and therefore it is imperative that the tax exemption is claimed accordingly with tax law. There are two concepts expatriate taxpayers must be familiar with: ‘tax home’and ‘abode’.
A tax home is defined as a general area of your main place of business, employment or post duty. You are not required to maintain your family home in the same area as your tax home. Your tax home is the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual.
However, US expats must be aware: If your ‘abode’ is located in the United States you are not considered as having a tax home in a foreign country.
An abode is defined as an individual’s home, habitation, residence, domicile or place of dwelling. This does not have to be your principle place of business. The location of your abode can differ from your tax home and often will depend on where you maintain your economic, family and personal relations. If you own an abode in the US then you are ineligible to have a tax home in a foreign country.
When identifying n individuals tax home the IRS will consider other factor to determine whether your abode is in the US or in a foreign country. These factors include:
· Blocks of time spent in the US
· If you maintain a US bank account
· If you maintain a US drivers licence
· If you are a registered US voter
If the factors listed above are positively identified the taxpayer will be identified as having familial, economic and personal ties in the US. Therefore, the taxpayer will not be eligible for the mentions foreign tax exclusions.