USA Raises the 2026 Housing Exclusion to $39,870

The IRS has kept the foreign housing exclusion moving with inflation and the 2026 cap is now $39,870 for most expats, up from $39,000 in 2025. That's real tax relief. The change is set out in IRS Notice 2026-25 and it sits alongside a higher FEIE limit of $132,900, which also lifts the base housing amount to $21,264.

Who it affects

This mainly helps US expats, some digital nomads and remote workers who meet the bona fide residence or physical presence tests and have a foreign tax home, honestly the kind of filing setup that makes housing costs matter fast. Self-employed taxpayers can still claim a deduction instead of an exclusion and high-cost posts can be much higher, with places like Hong Kong and Geneva far above the general cap, which, surprisingly, is where the real relief shows up.

Tourists don't qualify. Short stays won't cut it.

What to do

If you qualify, track your rent, utilities, repairs, insurance and parking, then file Form 2555 with Form 1040 for the right tax year, because the housing figure gets computed before the FEIE and the excluded amount can't also be claimed for the foreign tax credit. Keep receipts, convert foreign currency consistently and check whether a 2025 return can use the higher 2026 limits if the election works in your favor.

• Base housing amount: $21,264
• General cap: $39,870
• Top high-cost caps: above $114,000

Don't wait until filing season. This is the kind of rule that saves money only if you document it properly.

The USA guide covers entry rules, costs and longer stays.