US tax question

[tx75070]

Employer currently pays the apartment rent and lease is in company's name. I want to buy a house and employer is allowing the same money that is paid in rent to go towards mortgage that will be in my name.

The question: Is there a difference in tax liability having that money paid to me as salary or having it as housing allowance. Or is there even a difference?

[PDLM]

Can't answer on US tax, but presumably you are aware that they are treated quite differently for HK tax?

[tx75070]

Can't answer on US tax, but presumably you are aware that they are treated quite differently for HK tax?

Yes I am aware of how they are treated in HK, but I am afraid the tax exposure will be much greater for US taxes unless someone can tell me otherwise.

[nina_70]

If you take the benefit as salary your tax liability will definitely increase since you will no longer be able to claim the housing exclusion. There's also more....From what I've read there was recently a new ruling within the IRS that from 2006 onwards the expat housing exclusion will be cut. If this is true, it's a big blow to all those expats (which included me last year) who've counted on housing allowance as a nice benefit, and will significantly increase tax liability no matter which way you get the allowance (as salary or housing benefit). This is expecially true in HK where housing is so expensive. Read this article in the Washington Post:

By Daniel J. Mitchell
Special to washingtonpost.com's Think Tank Town Wednesday, June 28, 2006; 12:00 AM

The U.S. is one of only a handful of countries that insists on applying an onerous system of "world-wide taxation."
America's policy makers have tried to mitigate the adverse impact of world-wide taxation by exempting Americans living overseas from paying U.S. taxation on up to $82,400 annually. This is the "foreign-earned income exclusion" in Section 911 of the U.S. tax code. Thanks to a last-minute amendment inserted into a recent comprehensive tax bill, the foreign income exclusion will be slightly raised, but other benefits, such as housing exclusions, will be cut -- resulting in a huge spike in tax payments for many American expatriates.

Now, this is just what I've read so it's not confirmed and I advise you to get the "real" details from a tax attorney.

[ReverendJay]

The U.S. is one of only a handful of countries that insists on applying an onerous system of "world-wide taxation."

ah the joys and benefits of holding a US passport!

[nina_70]

Here's more information from the American Chamber of Commerce in Hong Kong:

On May 17th, President Bush signed the inappropriately named Tax
Increase Prevention and Reconciliation Act of 2005. This act will
significantly increase the US taxation of many Americans living abroad and make thousands of US companies less competitive in international markets.

The Act is retroactively effective as of January 1, 2006.

There are two adverse provisions: (1) the exclusion for housing has been limited to about US$12,000 per year, and (2) a new "stacking"
rule means that you will only be able to deduct any remaining foreign earned income exclusion against the lowest tax rates instead of against the highest tax rates.

You can view and contribute to a blog on this issue at following address:

http://amcham.org.hk/taxhike/