You can use the bona fide residence test to qualify for the foreign earned income and foreign housing exclusions and the foreign housing deduction only if you are either:
- A U.S. citizen, or
- A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect.
To meet the bona fide residence test you will need to establish that you are indeed a resident of the foreign country and have closer connections (business and social) to the foreign community than you do to the U.S.
Factors to consider include:
- Term of assignment- If your on a temporary foreign assignment with your company, you will not be deemed a bona fide resident.
- Visa status- If your visa limits your stay, you will not be deemed to be a bona fide resident.
- Resident country taxation- If your resident country does not tax you as a resident, you will not be deemed a bona fide resident.
- Your intent to stay- Have you established your home in the foreign country? Do you plan to remain indefinitely?
To qualify for bona fide residence, you must reside in a foreign country for an uninterrupted period that includes an entire tax year. An entire tax year is from January 1 through December 31 for taxpayers who file their income tax returns on a calendar year basis. During the period of bona fide residence in a foreign country, you can leave the country for brief or temporary trips back to the United States or elsewhere for vacation or business.
To keep your status as a bona fide resident of a foreign country, you must have a clear intention of returning from such trips, without unreasonable delay, to your foreign residence or to a new bona fide residence in another foreign country.
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This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult tax, legal and accounting advisors before engaging in any transaction.