ACA American Citizens Abroad

When the ironically named Tax Increase Prevention and Reconciliation Act of 2005 (TIRPA) was enacted earlier this year, it did the exact opposite of what its name implied as far as overseas Americans and green card holders living abroad were concerned. One of the areas most affected was the change in the method for calculating the overseas housing cost deduction/exclusion.

But the news turns out to be not all bad.

In the legislative language of this change, Section 911(c)(2)(B) of the Code, the Secretary of the Treasury was authorized to issue regulations or other guidance to adjust the percentage under section 911(c)(2)(A)(i) based on geographic differences in housing costs relative to housing costs in the United States.

The Joint Explanatory Statement of the Committee of Conference accompanying TIPRA had stated that the conferees’ intent was that the Secretary be permitted to use publicly available data, such as the Quarterly Report Indexes published by the U.S. Department of State or any other information that the Secretary deems reliable, in making adjustments.  See H.R. Conf. Rep. No. 304, 109^th Cong., 1^st Sess. 309 (2005).

Link here to the original Treasury Notice N 2006-87 issued on October 6^th 2006 concerning the determination of housing cost amount eligible for exclusion or deduction.  It lists the initial decisions that the Secretary has taken for adjusting the housing costs by major country and city.  It is important that you be aware of this list for your 2006 tax filing.

This table was derived from the Living Quarters Allowance table prepared by the Office of Allowances of the U.S. Department of State as of August 20, 2006. It identifies locations within countries with high housing costs relative to housing costs in the United States, and provides an adjusted limitation on housing expenses for a qualified individual incurring housing expenses in one or more of these high cost localities in 2006 to use (in lieu of the otherwise applicable limitation of $24,720) in determining housing expenses under section 911(c)(2)(A) of the Code.

This table will henceforth be updated each year by administrative pronouncement (e.g., through issuing a notice, amending Form 2555 or the instructions thereto, or by making a revised table available on the IRS website at http://www.irs.gov), beginning in 2007, based on the living quarters allowance for employees of the U.S. Department of State who are in Group 2, with family, contained in the first Living Quarters Allowance table released in that calendar year by the Office of Allowances of the U.S. Department of State.

Please notice also that comments are requested and instructions are given on how to submit such comments to the IRS.  This provides a direct opportunity for Americans abroad to make known their observations on the list of cities and suggestions for the future.