US Expat Tax Deductions

I am a US expat. Which deductions can I take on my tax return?

If you are a US citizen or resident alien living abroad, you are normally allowed to take the same deductions as if you were living in the United States.

However, you can only deduct those expenses definitely related to earnings you are including on your tax return. If you elect to exclude foreign earned income and /or housing amounts, any item that can be allocated or charged against your excluded foreign earned income or housing amount cannot be deducted, excluded and is not eligible for a credit.

If you have an item that is not definitely related to any particular type of income, you can take a deduction for these items. They include:

  • Personal exemptions
  • Qualified retirement contributions
  • Alimony payments
  • Charitable contributions
  • Medical expenses
  • Mortgage interest
  • Real estate taxes on your personal residence.

Can I take a deduction for a charitable contribution to a foreign charity?

Generally, you cannot take a deduction for a contribution to a foreign charitable organization. You can deduct contributions made to a US charitable organization that transfers funds to a charitable organization that is foreign.

You may be able to deduct contributions to certain Canadian, Mexican and Israeli charitable organizations. Under income tax treaties with Canada, Mexico, and Israel, generally you must have income from sources in Canada, Mexico, or Israel, and the organization must meet certain requirements. Contact us for more information to determine if your donation is deductible.

Can I take a deduction for property taxes paid to a foreign country?

You can deduct real property taxes you pay that are imposed on you by a foreign country. Real property is property that includes land and buildings, and anything affixed to the land. For a business, real property would include warehouses, factories, offices, and other buildings owned by the business. Real property only includes those structures that are affixed to the land, not those which can be removed, such as equipment. You cannot deduct personal property taxes unless you incurred the tax in the production of income or the expenses in a business.

Can I deduct the contributions to an IRA?

You can deduct contributions to a traditional or Roth IRA, but the contributions are limited. Your deduction is limited to the lesser of:

  • $5000 ($6000 if 50 years or older) or
  • your compensation that is includable in your gross income

To determine your compensation includable in your gross income for the tax year, do not include any amounts you exclude under the foreign earned income exclusion or the foreign housing exclusion.

If you are covered by an employer retirement plan at work, your deduction for your contributions to your traditional IRAs is generally limited based on your modified adjusted gross income. This is your adjusted gross income figured without taking into account the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction. Other modifications are also required. Contact us for more information on IRAs.

Can I claim an exemption for my nonresident alien spouse?

You can claim an exemption on your return for your nonresident alien spouse if:

  • your spouse has no gross income for US tax purposes and
  • is not a dependent of another US taxpayer

Can I claim an exemption for my dependents?

You can claim exemptions on your return for those that qualify as your dependents. To qualify as your dependent, they must be for some part of the calendar year in which your tax year begins:

  • a US citizen or
  • US national or
  • US resident alien or
  • Resident of Canada or Mexico

To be able to claim an exemption on your return for your dependents, you must include the social security number of each dependent. If your dependent is a nonresident alien who is not eligible for a social security number, the dependent must have an Individual Taxpayer Identification Number (ITIN). Please contact us if you need assistance in getting an ITIN for your dependent.

Disclaimer of Liability: This publication is intended to provide general information to our clients, friends and readers. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.

IRS Circular 230 Disclosure

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document.