US Foreign Housing Exclusion

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  1. #1

    Join Date
    Oct 2019
    Posts
    10

    US Foreign Housing Exclusion

    Hi,

    I’m choosing between two apartment rentals in Hong Kong, and I’m trying to figure out if the cheaper option is worth the savings (25,000 HKD per month vs 18,000 HKD per month). Considering the Foreign Housing Exclusion under US taxes, is it worth trying to opt for a less expensive apartment here?

    Any guidance would be so appreciated!! Thanks.


  2. #2

    Join Date
    Sep 2017
    Location
    Mid-Levels
    Posts
    72

    Threshold for Foreign Housing Exclusion in 2018 was USD 45.55 per day. I.e if you lived outside of US for full tax year (same as calendar year), then you multiply $45.55 x 365 = $16,624. Any housing expense beyond this number is your housing exclusion capped at country rate. Fortunately for Hong Kong, daily rate is pretty high (approx $ 313 per day in 2018 or a total of $114,300).

    HKD 25,000 per month = HKD 300k per year = USD 38,593 (at today's rate). Your exclusion will be $38.5k - $16.6k = $22k (rounded).

    Your total salary excluded from US taxes will be USD 103,900 (2018 limit) + USD 22k = $126k (rounded).

    you can do the math with HKD 18k per month and see which one will be beneficial to reducing your US taxable income, and therefore tax you will owe to US.

    Also, outside of tax consideration, is $25k unit more convenient vs the $18k unit?


  3. #3

    Join Date
    Oct 2019
    Posts
    10

    Thank you, wanderer! This is all a bit over my head.

    The $18k unit is closer to work (Mid-levels), but I like my current area (PoHo) more ☺️. I know so many people who have moved recently due to dropping rents, and after doing some research have realized that I’m overpaying for my current flat (although I do love it). The $18k unit is also larger!


  4. #4

    Join Date
    Sep 2017
    Location
    Mid-Levels
    Posts
    72

    simple math here:

    HKD 25,000 per month = HKD 300k per year = USD 38,593 (approx). Your exclusion will be $38.5k - $16.6k = $22k (rounded).

    HKD 18,000 per month = HKD 216k per year = USD 27,692 (approx). Your exclusion will be $27,692 - $16.6k = $11k (rounded).

    You taxable income goes up by $11k which at 24% tax rate is additional $2585 (USD) in tax bill.

    Savings from lower rent = HKD 84,000 or $10,800 - increase in tax $2585 = overall net reduction in expense.