Notice 2025-16

This notice provides adjustments to the limitation on housing expenses for purposes of section 911 of the Internal Revenue Code for specific locations for 2025. These adjustments are based on geographic differences in housing costs relative to housing costs in the United States.

Section 911 allows a qualified individual to elect to exclude from gross income the foreign earned income and to exclude or deduct the housing cost amount of such individual.

The term “housing cost amount” is generally the total of the housing expenses for the taxable year minus a base housing amount. See § 911(c)(1). For this purpose, the base housing amount for the taxable year is limited to an amount that is tied to the maximum foreign earned income exclusion amount of the qualified individual, which is $130,000 for 2025. See § 911(c)(1)(B). Specifically, the base housing amount is 16 percent of the maximum foreign earned income exclusion amount (computed on a daily basis), multiplied by the number of days in the applicable period that fall within the taxable year. Assuming that the entire taxable year of a qualified individual is within the applicable period, the base housing amount for 2025 is $20,800 ($130,000 x .16).

Similarly, the housing expense amount is also limited, based on a percentage of the maximum foreign earned income exclusion amount. Specifically, the limit on such housing expenses generally equals 30 percent of the maximum foreign earned income exclusion amount (computed on a daily basis), multiplied by the number of days in the applicable period for which the taxpayer is a qualified individual. See § 911(c)(2)(A) and (d)(1). Thus, under this general limitation, a qualified individual whose entire taxable year is within the applicable period is limited to maximum housing expenses of $39,000 ($130,000 x .30) for 2025. However, section 911(c)(2)(B) authorizes the Secretary to issue regulations or other guidance to adjust the percentage under section 911(c)(2)(A)(i) (which determines the limit on housing expenses) based on geographic differences in housing costs relative to housing costs in the United States. Pursuant to this authority, the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) have published annual notices concerning the limitation on the section 911 housing cost amounts since the 2006 taxable year.

For more background on the foreign housing exclusion, see https://www.irs.gov/individuals/international-taxpayers/foreign-housing-exclusion-or-deduction.

The following table provides adjusted limitations on housing expenses (in lieu of the otherwise applicable limitation of $39,000) for 2025. All amounts are in U.S. dollars.

For some locations, the limitation on housing expenses provided in Section 3 of this notice may be higher than the limitation on housing expenses provided in the “Table of Adjusted Limitations for 2024” in Notice 2024-31, 2024-15 I.R.B. 869. A qualified individual incurring housing expenses in such a location during 2024 may apply the adjusted limitation on housing expenses provided in Section 3 of this notice for 2025 (prorated over 366 days rather than 365) in lieu of the amounts provided in the “Table of Adjusted Limitations for 2024” in Notice 2024-31 (and as set forth in the Instructions to Form 2555, Foreign Earned Income, for 2024).

The Treasury Department and the IRS anticipate that future annual notices providing adjustments to housing expense limitations will make a similar option available to qualified individuals that incur housing expenses in the immediately preceding year. For example, when adjusted housing expense limitations for 2026 are issued, it is expected that taxpayers will be permitted to apply those adjusted limitations to the 2025 taxable year.

This notice supersedes Notice 2024-31, 2024-15 I.R.B. 869.

This notice is effective for taxable years beginning on or after January 1, 2025.

However, as provided in Section 4, taxpayers may apply the 2025 adjusted housing limitations contained in Section 3 of this notice to the taxable year beginning in 2024.

The principal author of this notice is Kate Y. Hwa of the Office of Associate Chief Counsel (International). For further information regarding this notice, contact Ms. Hwa at (202) 317-5001 (not a toll-free call).