Foreign Housing Exclusion 2025–2026: How Americans in the UK Exclude Rent on Top of the FEIE

If you qualify for the Foreign Earned Income Exclusion (FEIE), you may also be able to exclude part of what you pay to keep a roof over your head abroad. The Foreign Housing Exclusion sits on top of the FEIE on the same Form 2555, and for anyone renting in London it is frequently worth more than people expect — because London rent is high and the exclusion is designed around exactly that problem.

Short answer

The housing exclusion lets you exclude reasonable housing expenses paid with employer-provided amounts, to the extent they exceed a base amount (16% of the FEIE maximum) and do not exceed a limit (30% of the FEIE maximum, or a higher figure for listed high-cost cities). The figures:

The excludable amount is your qualifying housing expenses minus the base amount, capped at the limit. If you are self-employed the same calculation produces a housing deduction rather than an exclusion.

Who can claim it

You must first qualify for the FEIE itself: a tax home in a foreign country and either the bona fide residence test or the physical presence test (330 full days abroad in a 12-month period). The housing exclusion is then available for housing expenses paid with employer-provided amounts — which for an employee simply means salary. Self-employed taxpayers claim the housing deduction instead, limited to their foreign earned income after the FEIE.

The exclusion applies to your household, so a married couple sharing a home cannot each claim the full amount; if both spouses work abroad, one claims the housing exclusion, or the expenses are split under the rules in the Form 2555 instructions.

What counts as a housing expense

Reasonable expenses actually paid during the year for housing in a foreign country, including:

• Rent
• The fair rental value of housing provided in kind by your employer
• Utilities (other than telephone charges)
• Real and personal property insurance
• Non-refundable fees paid to obtain a lease
• Rental of furniture and accessories
• Residential parking
• Repairs

Expenses that do not count include the cost of buying property or mortgage principal and interest, purchased furniture, domestic staff, pay-TV subscriptions, improvements that add to the property's value, and anything the IRS considers lavish or extravagant in the circumstances. Council tax is generally treated as a tax rather than a housing expense.

A London example

Take a single US citizen renting a flat in London at £2,600 a month in 2025 — £31,200 for the year. At an average exchange rate of about 1.27 that is roughly $39,600. Add $1,800 of qualifying utilities and contents insurance for total housing expenses of about $41,400.

• Subtract the 2025 base amount of $20,800 → $20,600
• Compare with the limit. The standard limit is $39,000, but London appears in the IRS table of high-cost locations in the Form 2555 instructions with a higher limit, so the standard cap is not the binding constraint here.
• Housing exclusion ≈ $20,600, claimed alongside a FEIE of up to $130,000.

The combined FEIE and housing exclusion cannot exceed your foreign earned income for the year, and any housing exclusion claimed reduces the amount available under the FEIE.

Why the location table matters for the UK

Each year the IRS publishes, in the Form 2555 instructions, a table of cities whose housing costs justify a limit above the standard 30%. London has consistently been on that list with a materially higher limit. If you rent in London, always check the current year's table before assuming the $39,000 / $39,870 cap applies — the difference can be thousands of dollars of additional exclusion.

Exclusion or credit? The decision that matters more

The housing exclusion only helps if the FEIE route is the right one for you. For many Americans in the UK it is not: UK income tax rates are higher than US rates, so the Foreign Tax Credit (Form 1116) often eliminates the US liability on salary entirely while preserving the refundable Child Tax Credit and building carry-forward credits — neither of which the FEIE does. And once you claim the FEIE and later revoke it, you generally cannot claim it again for five years without IRS consent.

The right comparison is FEIE + housing exclusion versus FTC, modelled on your actual numbers, before the first return is filed. That is the calculation we run on every new client with UK employment income.

Key points

• The housing exclusion is claimed on Form 2555 with the FEIE; you cannot claim it without qualifying for the FEIE.
• 2025: base $20,800, standard limit $39,000. 2026: base $21,264, standard limit $39,870. London has a higher limit in the IRS table.
• Rent, utilities (not phone), insurance, furniture rental, parking and repairs qualify; mortgage costs and purchased furniture do not.
• Self-employed taxpayers take a housing deduction instead of an exclusion.
• Compare against the Foreign Tax Credit before choosing — for higher UK earners the credit is often the better route.

Sources

• IRS — Foreign housing exclusion or deduction
• IRS — Foreign earned income exclusion
• IRS — About Form 2555 (instructions include the high-cost location table)
• IRS — Publication 54