2026 FEIE, foreign housing exclusion or deduction, and the tax on what is left
Updated October 2026
1. Exclusion limit. $132,900 for 2026 (Rev. Proc. 2025-32, sec. 4.39), multiplied by qualifying days ÷ 365 if you qualify for only part of the year. 2. Housing amount. Qualified housing expenses, up to the limit for your location (30% of the exclusion, $39,870, unless your city has a higher limit in the Form 2555 instructions), minus the base of 16% ($21,264), both prorated by days. 3. Housing exclusion or deduction. The part of the housing amount paid with employer-provided amounts is excluded; the self-employed share is a deduction. 4. FEIE. The smaller of the limit or foreign earned income minus the housing exclusion. 5. Tax. Under section 911(f), the tax on what is left uses the rates that would apply if the excluded income were still included.
Worked example. $200,000 salary, $36,000 rent, abroad all year. Housing amount $36,000 − $21,264 = $14,736, all excluded since an employer paid the salary. FEIE: the smaller of $132,900 or $200,000 − $14,736, so $132,900. Remaining income $52,364 less the $16,100 standard deduction leaves $36,264 of taxable income. Stacking: tax on $183,900 minus tax on $147,636 = $8,703, against $36,734 with no exclusion.
Pub. 54 (December 2025): a housing amount of $18,000 and $100,000 of foreign earned income, half from employment and half from self-employment. Half the housing amount, $9,000, is treated as employer-provided and excluded; the other $9,000 is a housing deduction “subject to the following limit”. The deduction cannot exceed foreign earned income minus the two exclusions. With 2026 figures the FEIE is then $100,000 − $9,000 = $91,000, which leaves no room for the deduction this year. The $9,000 carries over to 2027 only. The calculator shows that row in the table below.
| Item (2026) | Full year | Per qualifying day |
|---|---|---|
| Foreign earned income exclusion | $132,900 | $364.11 |
| Housing base (16%) | $21,264 | $58.26 |
| General housing expense limit (30%) | $39,870 | $109.23 |
| Maximum housing exclusion at the general limit | $18,606 | $50.98 |
To qualify, your tax home must be in a foreign country and you must be a bona fide resident of a foreign country for an uninterrupted period that includes a full tax year, or be physically present in foreign countries for 330 full days in any 12 consecutive months. A married couple who both qualify can each exclude up to $132,900.
| Situation (single, 2026) | FEIE | Housing exclusion | Housing deduction | Tax with stacking | Tax with no exclusion |
|---|---|---|---|---|---|
| Employee abroad all year, $200,000 salary, $36,000 rent | $132,900 | $14,736 | $0 | $8,703 | $36,734 |
| Same, but only 200 qualifying days in 2026 | $72,822 | $10,195 | $0 | $23,758 | $36,734 |
| Employee, $120,000 salary, $30,000 rent | $111,264 | $8,736 | $0 | $0 | $17,570 |
| Self-employed, $150,000, $36,000 rent | $132,900 | $0 | $14,736 | $0 | $24,734 |
| Pub 54 split: $50,000 wages + $50,000 self-employment | $91,000 | $9,000 | $0 | $0 | $13,170 |
Self-employed people still owe 15.3% self-employment tax on their net earnings even when the income is excluded, and the self-employed share of housing is a deduction rather than an exclusion.
Foreign earned income is pay for work performed abroad: wages, bonuses, allowances and self-employment earnings. Pensions, investment income and U.S.-source pay are not. Housing expenses include rent, utilities other than phone and TV, and insurance, but not mortgage principal or purchase costs. Use the limit for your city from the Form 2555 instructions if it is higher than $39,870.
The foreign tax credit, which can beat the exclusion in high-tax countries; state tax for people who keep a state domicile; deductions allocable to excluded income; the effect of excluded income on IRA contributions, the earned income credit and the child tax credit; and the high-cost location table itself (enter your city’s figure). Choosing or revoking the exclusion has long-term effects, so review it with a tax professional.
Thinking excluded income lowers your bracket. The stacking rule keeps the remaining income at the higher rates. Counting partial days toward the 330: only full days count. Forgetting self-employment tax. Claiming the housing exclusion on self-employment income; that part is a deduction. Not filing: the exclusion must be claimed on Form 2555 with a return, even when no tax is owed.