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contributions to a nonexempt employees’

foreign housing and the housing of your

1. Your tax homes were not within a

trust or to a nonqualified annuity contract.

spouse and dependents if they lived with

reasonable commuting distance of each

you. You may also include the reasonable

other and

Income received in prior year. Foreign

expenses of a second foreign

2. Each spouse’s household was not

earned income received in 2001 for

household (defined on this page).

services you performed in 2002 may be

within a reasonable commuting distance

Housing expenses are considered

excluded from your 2001 gross income if,

of the other spouse’s tax home. This is

reasonable to the extent they are not

and to the extent, the income would have

true even if you and your spouse file a

lavish or extravagant under the

been excludable if you had received it in

joint return.

circumstances.

2002. To claim the additional exclusion,

If the requirements in 1 and 2 above are

you must amend your 2001 tax return. To

Housing expenses include rent, utilities

not met, only one of you may claim the

do this, file Form 1040X.

(other than telephone charges), real and

housing exclusion or deduction. This is

Income earned in prior year. Foreign

personal property insurance,

true even if you and your spouse file

earned income received in 2002 for

nonrefundable fees paid to obtain a lease,

separate returns. If your spouse qualifies

services you performed in 2001 may be

rental of furniture and accessories,

for, but does not claim, a housing

excluded from your 2002 gross income if,

residential parking, and household

exclusion or deduction, you may include

and to the extent, the income would have

repairs. You may also include the fair

on your Form 2555 the qualified

been excludable if you had received it in

rental value of housing provided by, or on

expenses of your spouse’s household if

2001.

behalf of, your employer if you have not

the home qualifies as a second foreign

excluded it on line 25.

If you are excluding income under this

household.

rule, do not include this income in Part

Do not include deductible interest and

IV. Instead, attach a statement to Form

Line 29. Enter the number of days in

taxes, any amount deductible by a

2555 showing how you figured the

your qualifying period that fall within your

tenant-stockholder in connection with

exclusion. Enter the amount that would

2002 tax year. Your qualifying period is

cooperative housing, the cost of buying or

have been excludable in 2001 on Form

the period during which you meet the tax

improving a house, principal payments on

2555 to the left of line 43. Next to the

home test and either the bona fide

a mortgage, or depreciation on the house.

amount enter “Exclusion of Income

residence or the physical presence test.

Also, do not include the cost of domestic

Earned in 2001.” Include it in the total

labor, pay television, or the cost of buying

reported on line 43.

Example. You establish a tax home

furniture or accessories.

and bona fide residence in a foreign

Note: If you claimed any deduction,

Include expenses for housing only

country on August 14, 2002. You maintain

credit, or exclusion on your 2001 return

during periods for which:

the tax home and residence until January

that is definitely related to the 2001

•

The value of your housing is not

31, 2004. You are a calendar year

foreign earned income you are excluding

excluded from gross income under

taxpayer. The number of days in your

under this rule, you may have to amend

section 119 (unless you maintained a

qualifying period that fall within your 2002

your 2001 income tax return to adjust the

second foreign household) and

tax year is 140 (August 14 through

amount you claimed. To do this, file Form

•

You meet the tax home test and either

December 31, 2002).

1040X.

the bona fide residence or physical

Line 20. If you engaged in an

presence test.

Nontaxable U.S. Government

unincorporated trade or business in which

allowances. If you or your spouse

Second foreign household. If you

both personal services and capital were

received a nontaxable housing allowance

maintained a separate foreign household

material income-producing factors, a

as a military or civilian employee of the

for your spouse and dependents at a

reasonable amount of compensation for

U.S. Government, see Pub. 54 for

place other than your tax home because

your personal services will be considered

information on how that allowance may

the living conditions at your tax home

earned income. The amount treated as

affect your housing exclusion or

were dangerous, unhealthful, or otherwise

earned income, however, may not be

deduction.

adverse, you may include the expenses

more than 30% of your share of the net

of the second household on line 28.

profits from the trade or business after

Line 32. Enter any amount your

subtracting the deduction for one-half of

Married couples. If both you and your

employer paid or incurred on your behalf

self-employment tax.

spouse qualify for the tax benefits of Form

that is foreign earned income included in

2555, you may each choose to exclude or

If capital is not an income-producing

your gross income for the tax year

deduct part of your foreign housing

factor and personal services produced the

(without regard to section 911).

expenses.

business income, the 30% rule does not

Examples of employer-provided

apply. Your entire gross income is earned

If you and your spouse lived in the

income.

amounts are:

same foreign household and file a joint

•

Wages and salaries received from your

Line 25. Enter the value of meals and/or

return, the total qualified expenses for the

lodging provided by, or on behalf of, your

employer.

household may be claimed on either your

•

employer that is excludable from your

Form 2555 or your spouse’s Form 2555.

The fair market value of compensation

income under section 119. To be

However, if you and your spouse have

provided in kind (such as the fair rental

excludable, the meals and lodging must

different periods of residence or presence

value of lodging provided by your

have been provided for your employer’s

and the one with the shorter period claims

employer as long as it is not excluded on

convenience and on your employer’s

the expenses on his or her Form 2555,

line 25).

•

business premises. In addition, you must

only the qualified expenses paid or

Rent paid by your employer directly to

have been required to accept the lodging

incurred during the shorter period may be

your landlord.

as a condition of your employment. If you

claimed. If you file separate returns, the

•

Amounts paid by your employer to

lived in a camp provided by, or on behalf

total qualified housing expense may

reimburse you for housing expenses,

of, your employer, the camp may be

either be claimed on your Form 2555 or

educational expenses of your

considered part of your employer’s

your spouse’s Form 2555, or you each

dependents, or as part of a tax

business premises. See Pub. 54 for

may claim part of the expenses on your

equalization plan.

details.

separate Forms 2555.

Self-employed individuals. If all of your

If you and your spouse lived in

Part VI

foreign earned income (Part IV) is

separate foreign households, you each

self-employment income, skip lines 32

Line 28. Enter the total reasonable

may claim qualified expenses for your

and 33 and enter zero on line 34. If you

expenses paid or incurred during the tax

own household on your separate Forms

qualify, be sure to complete Part IX.

year by you, or on your behalf, for your

2555 only if:

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Instructions For Form 2555 - Foreign Earned Income - Internal Revenue Service - 2002 Page 3

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