Notice 2017-21

This notice provides adjustments to the limitation on housing expenses for purposes of section 911 of the Internal Revenue Code for specific locations for 2017. These adjustments are made on the basis of geographic differences in housing costs relative to housing costs in the United States.

SECTION 2. BACKGROUND

Section 911(a) allows a qualified individual to elect to exclude from gross income the foreign earned income and 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 section 911(c)(1). For this purpose, the housing expenses taken into account are limited to an amount that is tied to the maximum foreign earned income exclusion. Specifically, the limit on such housing expenses equals 30 percent (adjusted as may be provided under the Secretary’s authority under section 911(c)(2)(B)) of the maximum exclusion amount (computed on a daily basis), multiplied by the number of days in the applicable period that fall within the taxable year. See section 911(c)(2)(A). Thus, under this general limitation, a qualified individual whose entire taxable year is within the applicable period is limited to maximum housing expenses of $30,630 ($102,100 x .30) for 2017.

Similarly, the computation of the base housing amount is also tied to the maximum foreign earned income exclusion. Specifically, the base housing amount is 16% of the maximum exclusion amount (computed on a daily basis), multiplied by the number of days in the applicable period that fall within the taxable year. See sections 911(c)(1)(B) and 911(d)(1). Assuming that the entire taxable year of a qualified individual is within the applicable period, the base housing amount for 2017 is $16,336 ($102,100 x .16). 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 Internal Revenue Service (IRS) and the Treasury Department 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 $30,630) for 2017.

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 2016” in Notice 2016–21. A qualified individual incurring housing expenses in such a location during 2016 may apply the adjusted limitation on housing expenses provided in Section 3 of this notice for 2016 in lieu of the amounts provided in the “Table of Adjusted Limitations for 2016” in Notice 2016–21 (and as set forth in the Instructions to Form 2555, Foreign Earned Income, for 2016).

The Treasury Department and the IRS anticipate that future annual notices providing adjustments to housing expense limitations will make a similar election available to qualified individuals that incur housing expenses in the immediately preceding year. For example, when adjusted housing expense limitations for 2018 are issued, it is expected that taxpayers will be permitted to apply those adjusted limitations to the 2017 taxable year.

Notice 2011–8, 2011–1 C.B. 503; Notice 2012–19, 2012–1 C.B. 440; Notice 2013–31, 2013–1 C.B. 1099; Notice 2014–29, 2014–1 C.B. 991; Notice 2015–33, 2015–18 I.R.B. 934; and Notice 2016–21, 2016–1 C.B. 465, are relisted to assist those individuals who are filing prior year or amended tax returns.

This notice supersedes Notice 2006–87, 2006–2 C.B. 766; Notice 2007–25, 2007–1 C.B. 760; Notice 2007–77, 2007–2 C.B. 735; Notice 2008–107, 2008–2 C.B. 1266; Notice 2010–27, 2010–1 C.B. 531; Notice 2011–8, 2011–1 C.B. 503; Notice 2012–19, 2012–1 C.B. 440; Notice 2013–31, 2013–1 C.B. 1099; Notice 2014–29, 2014–1 C.B. 991; Notice 2015–33, 2015–18 I.R.B. 934; and Notice 2016–21, 2016–1 C.B. 465.

This notice is effective for taxable years beginning on or after January 1, 2017. However, as provided in Section 4, a taxpayer may elect to apply the 2017 adjusted housing limitations contained in Section 3 of this notice to his or her taxable year beginning in 2016.

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 Kate Y. Hwa on (202) 317-6934 (not a toll-free number).