US Expat Tax Deductions and Credits

For Americans living abroad, tax season can be complicated. On the plus side, you can generally claim a broader range of tax deductions and credits than most Americans. To help you understand your rights, we’ve compiled a list of some of the most common expat tax deductions. 

1. Standard or Itemized Deduction 

Just like any US citizen, Americans living abroad can claim the standard deduction or choose to itemize their deductions. Let’s look at both options. 

Standard Deduction 

The standard deduction amount will depend on your filing status and age. 

For the 2024 tax year (filed in 2025), the standard deductions are as follows:  

Filing Status	Single	MFJ*	HOH	MFS*
Age Under 65	$14,600	$29,200	$21,900	$14,600
Age 65 or Older	$16,100	$30,700	$23,400	$16,100

Itemized Deduction 

• Medical/dental expenses – Only the amount of unreimbursed medical and dental expenses that exceed 7.5% of your Adjusted Gross Income (AGI) can be deducted.
• State and Local Taxes (SALT) – The deduction for state and local taxes is capped at $10,000 for Married Filing Jointly (MFJ) and $5,000 for Married Filing Separately (MFS) under the Tax Cuts and Jobs Act (TCJA).
• Interest you paid – Mortgage interest on primary and secondary homes is deductible, but it’s limited to interest on mortgages up to $750,000 (or $375,000 for MFS) for homes purchased after December 15, 2017. For older mortgages, the limit remains at $1 million.
• Gifts to charity – Contributions to qualifying charitable organizations are deductible, subject to certain limitations, generally up to 60% of AGI.
• Casualty and Theft Losses – Only losses related to a federally declared disaster are deductible.
• Other Miscellaneous Deductions – The TCJA eliminated many miscellaneous itemized deductions that were subject to the 2% of AGI floor through 2025. However, a few deductions, like gambling losses (limited to winnings), remain.

Determining whether to opt for standard or itemized deductions is a complicated decision. You’ll want to be sure you are taking advantage of the most significant tax deduction available, and you also don’t want to spend unnecessary time putting together itemized deductions if the standard deduction is a better option for you.

Consult a qualified tax professional like Greenback Expat Tax Services to review your options.

2. Foreign Earned Income Exclusion 

The Foreign Earned Income Exclusion (FEIE) is a deduction that allows you to exclude the first $126,500 for the 2024 tax year (filed in 2025). To qualify for the FEIE, you must meet either the Bona Fide Residence Test or Physical Presence Test.

Earned income typically includes only salary or self-employment earnings. Unemployment earnings and passive income do not qualify for this exclusion.

Self-employed individuals should note that the FEIE applies to income taxes. It is not applied against self-employment tax, which is generally 15.3% of business profits. 

Once you claim the FEIE on a tax return, you must continue using it on subsequent returns for which you qualify. Not claiming it in future tax years may disqualify you from taking it for 5 years or more.

Bona Fide Residence Test 

According to IRS Pub 54, which explains most of the expat rules, you meet the bona fide residence test if you must:

• Have lived abroad for a full calendar year before you can apply, so this is not an option for first-year expats.
• Be a US citizen or US resident alien who is also a citizen of a country that the US has a tax treaty with
• Not be working abroad for a fixed amount of time – such as a 1 or 2-year contract.
• Illustrate through your actions that you truly live overseas with no intentions of returning to the US. You can do this by having a long-term residence, local bank accounts, ties to the local community, and a permanent job.

The IRS grants an extension to January 31 of the year following the regular due date of your tax return by filing Form 2350. This allows you to qualify for the Bona Fide Residence test while filing your tax return promptly. 

Physical Presence Test 

You might qualify under the Physical Presence test for purposes of the FEIE if you spent at least 330 days outside of the US during any 365 periods that either started or ended in the tax year, and your Tax Home must be in a foreign country. Tax home can be a bit tricky, but generally speaking, it is where you work – so if you work overseas, even if it’s for a US company, then you would qualify.

Let’s say you moved out of the US on February 1st, 2024. Then, if we add that you traveled to the US for 30 days from February 1st, 2024, to February 1st, 2025, you would qualify.  

Please note that the Physical Presence Test is all or nothing – if you are inside a foreign country for only 329 days, you will not qualify. You must be inside a foreign country for a full 24-hour day that starts and ends at midnight for 330 days. Time spent on international waters or flying over international waters does not qualify (although if you fly over another country’s air space, it may).

Like the Bona Fide Residence Test, your maximum exclusion is prorated based on the number of days inside a foreign country divided by 365. So, if you are doing a split year—say July 1—December 31 in one year—you would have 184/365 = 50.41% of the FEIE you could utilize.

3. Foreign Housing Exclusion 

The Foreign Housing Exclusion is an addition to the FEIE that is available to individuals who have Employer-provided salaries, i.e., not self-employed individuals. Self-employed individuals can use the Foreign Housing Deduction.

To calculate your FHE, you must first calculate the base amount, which is set annually at 16% of the FEIE. As the FEIE increases with inflation, so does the FHE.

How to Calculate the Foreign Housing Exclusion

1. Calculate the Base Housing Amount: The base housing amount is 16% of the maximum Foreign Earned Income Exclusion (FEIE). For the 2024 tax year, the FEIE is $126,500, making the base housing amount 16% of that, which is $20,240.
2. Determine the Maximum Foreign Housing Exclusion (FHE): The maximum FHE is generally 30% of the FEIE. For 2024, this would be 30% of $126,500, equating to $37,950. However, this limit can be higher for specific
3. Calculate the Maximum Exclusion You Can Claim: Subtract the base housing amount from the maximum FHE or the specific limit for high-cost locations. For example, using the standard limit for 2024, it would be $37,950 (maximum FHE) minus $20,240 (base housing amount), resulting in $17,710.
4. Determine Your Daily Exclusion Rate: Divide the maximum exclusion amount by 365 to find your daily exclusion rate. For the standard limit, it would be $17,710 ÷ 365 = approximately $48.52 per day.
5. Calculate Your Total Exclusion Based on Days Abroad: Multiply your daily exclusion rate by the number of days you were abroad. For instance, if you were abroad for 345 days, it would be 345 days × $48.52 per day = approximately $16,742.40.

Housing expenses include:

• Small out-of-pocket repairs
• Utilities (other than telephone charges)
• Real and personal property insurance
• Nondeductible occupancy taxes
• Nonrefundable fees for securing a leasehold
• Rental of furniture and accessories
• Residential parking

Housing expenses do NOT include the following:

• Expenses that are lavish or extravagant under the circumstances
• Deductible interest and taxes (including deductible interest and taxes of a tenant-stockholder in a cooperative housing corporation)
• The cost of buying property, including principal payments on a mortgage
• The cost of domestic labor (maids, gardeners, etc.)
• Pay television subscriptions
• Improvements and other expenses that increase the value or appreciably prolong the life of a property
• Purchased furniture or accessories
• Depreciation or amortization of property or improvements

4. Foreign Tax Credit 

If you earn money overseas and you pay or accrue tax locally on that money, then you can utilize the Foreign Tax Credit (form 1116). The FTC allows you to tax a dollar-for-dollar tax credit on your US taxes for amounts that you have paid or accrued to a foreign government. So if you paid the UK $20,000 in taxes, then you can reduce your US tax bill by that same $20,000. The FTC is most helpful for individuals who live in high-tax countries – such as those in Western Europe or for individuals with unearned income – such as overseas rental properties.

If you use the FEIE as previously described, you cannot claim the FTC on the same income, although you can use both forms in one year. Say you have a day job in France, but you freelance on the weekends. You could use the FTC to offset the income from your tax job, which you pay tax on locally, and you could use the FEIE to offset the US income tax on your freelance work. However, certain cases may make more sense for you to claim the FTC than the FEIE (see Child Tax Credit below).

The FTC is a non-refundable tax credit which means that it can reduce your US taxes to $0, but the IRS will not refund you the excess credit. The excess amount is carried back one year and carried forward upwards for up to 10 years.

5. Child Tax Credit 

The Child Tax Credit (CTC) includes both a non-refundable and refundable element. For the 2024 tax year, individuals with children under 17 years of age can claim a credit of up to $2,000 per qualifying dependent, and $1,600 of that may be refundable through the Additional Child Tax Credit (ACTC). To qualify, you cannot claim the FEIE and must have earned income to claim the refundable portion.

Eligibility Requirements for the Child Tax Credit

To qualify for the Child Tax Credit, a child must meet all of the following criteria:

• Relationship: Be your son, daughter, stepchild, foster child, sibling, half-sibling, grandchild, niece, or nephew.
• Age: Be under the age of 17 at the end of the tax year (2024).
• Dependent: Be claimed as your dependent on your tax return.
• Support: Have provided less than half of their own support during the year.
• Residency: Lived with you for more than half of the year.
• Citizenship: Be a US citizen, national, or resident alien.
• Identification: Have a valid Social Security Number (SSN) or Adoption Taxpayer Identification Number (ATIN).

Income Limits for the Child Tax Credit

To claim the full credit:

• If Married Filing Jointly (MFJ), your modified adjusted gross income (MAGI) must be below $400,000.
• For all other filers, your MAGI must be below $200,000.

If your income exceeds these limits, the credit is reduced by $50 for every $1,000 of income above the threshold. The credit phases out completely when your income reaches:

• $500,000 for MFJ
• $300,000 for all other filers

6. Educator Expenses Deduction 

Educators of children in elementary and secondary schools (kindergarten through 12th grade—or the overseas equivalent) may deduct up to $300 on their 2024 tax return for school supplies and equipment purchased out of pocket. If both spouses are eligible educators and file jointly, the deduction can be up to $600.

This deduction is an “above-the-line” deduction, meaning it reduces your taxable income directly and can be claimed on Form 1040, even if you do not itemize deductions.

7. Child and Dependent Care Credit 

If you paid a person or organization to care for your children or other dependents (such as adult dependents with special needs or elder care) so you could work or look for work, you may be eligible to claim the Child and Dependent Care Credit.

For the 2024 tax year, the credit amount is up to $3,000 for one qualifying person and $6,000 for two or more qualifying people. The maximum credit is 35% of your employment-related expenses. However, once your Adjusted Gross Income (AGI) exceeds $43,000, the maximum credit drops to 20% of your employment-related expenses.

Who is a Qualifying Person?

A qualifying person must meet one of the following criteria:

1. Your Qualifying Child:
   • Your dependent child was under age 13 at the time the care was provided.
2. Your Spouse:
   • Your spouse who was physically or mentally unable to care for themselves and lived with you for more than 50% of the year.
3. Other Dependent or Qualifying Individual:
   • A person who was physically or mentally unable to care for themselves and lived with you for more than 50% of the year, and:
     • Was your dependent, or
     • Would have been your dependent except that they:
       1. Received gross income of $4,700 or more (2024 limit).
       2. Filed a joint return.
       3. You or your spouse could be claimed as a dependent on someone else’s tax return.

8. Individual Retirement Account (IRA) Deductions 

dividual Retirement Accounts (IRAs) are a key tool for retirement planning. These are not employer-sponsored plans (like a 401k). There are two main types of IRAs:

1. Roth IRA: Contributions are made with after-tax money, and withdrawals in retirement are tax-free.
2. Traditional IRA: Contributions are made with pre-tax money (if deductible), and withdrawals in retirement are taxed as regular income.

Contribution Limits for 2024

To contribute to an IRA, you must have earned income reported on your tax return. For the 2024 tax year, the maximum contribution limit is:

• $6,500 per taxpayer.
• $7,500 if you are age 50 or older (catch-up contribution).

You can make contributions for the 2024 tax year until April 15, 2025.

Roth IRA

A Roth IRA is a retirement account where your contributions are not tax-deductible, but your earnings grow tax-free. Withdrawals in retirement are also tax-free if certain conditions are met. Contributions and balances from converted Traditional IRAs must remain in the account for at least 5 years, or they may be subject to a 10% early withdrawal penalty.

Advantages of a Roth IRA include:

• No required minimum distributions (RMDs).
• No age limit for making contributions.
• Potentially tax-free inheritance for beneficiaries.

Contribution Limits and MAGI Phase-Out Ranges for the 2024 tax year (filed in 2025):

Filing Status	MAGI Lower Limit	MAGI Upper Limit
Single	$146,000	$161,000
Married Filing Jointly (MFJ)	$230,000	$240,000
Head of Household (HoH)	$146,000	$161,000
Married Filing Separately (MFS)	$0	$10,000

If your MAGI is below the lower limit of these ranges, you can contribute the full amount to a Roth IRA. Contributions are gradually reduced within the phase-out range. If your MAGI exceeds the upper limit, you cannot contribute to a Roth IRA.

Traditional IRA

If you’re unable to contribute to a Roth IRA or prefer to deduct your contributions, you may consider a Traditional IRA. Contributions are often tax-deductible, but the withdrawals during retirement are taxed as ordinary income.

Key Features of a Traditional IRA:

• Contributions are deductible depending on income and whether you or your spouse are covered by a workplace retirement plan.
• Withdrawals are taxed at regular income tax rates during retirement.
• Required Minimum Distributions (RMDs) start at age 73 under current law.

Backdoor Roth IRA Strategy:

Some individuals use a “backdoor Roth” strategy, where they contribute to a Traditional IRA (without claiming a tax deduction) and later convert the balance to a Roth IRA. This allows them to bypass the MAGI limits for Roth IRA contributions.

Early Withdrawal Penalty:

If you withdraw from a Traditional IRA before age 59.5, you may face a 10% early withdrawal penalty, in addition to regular income taxes, unless an exception applies.

9. Tax Treaties 

While not precisely an expat tax deduction, a tax treaty can help Americans avoid double taxation while living abroad. When living in a country with a tax treaty in place, that treaty will define whether the US or your host country has jurisdiction to tax a given source of income. (Typically, you will pay taxes to whichever country you reside in for most of the tax year.) 

Keep in mind that most tax treaty benefits cannot be claimed by US citizens abroad due to the Saver’s clause. Only treaty articles specifically excluded from the Saver’s clause can be claimed by US expats. 

10. Totalization Agreements 

Totalization agreements are treaty-like agreements between the US and another country’s social security system. These agreements cover the amount of ‘credits’ accrued for old age or social security plans based on work and salary. 

A totalization agreement will also cover US taxpayers’ self-employment taxes, which are the Social Security and Medicare payments for self-employed income. This is done by informing the IRS that the self-employment taxes are being paid to the resident country instead of the US. Self-employed taxes can amount to 15% or more of a sole proprietor’s net income. 

It’s important to research if your resident country has a Totalization Agreement with the US before you go into business for yourself. 

To learn if your host country has a tax treaty with the US, check out this list from the Social Security Administration. 

Get Reliable Help with Your Expat Tax Deductions 

While this is not a comprehensive list of expat tax deductions and credits, we hope it gives you a better understanding of how you can reduce your US expat taxes. If you have any additional questions, we’d be happy to answer them! 

If you’re ready to be matched with a Greenback accountant, click the get started button below. For general questions on expat taxes or working with Greenback, contact our Customer Champions.