How much foreign income can I exclude in 2025?

For the 2025 tax year the Foreign Earned Income Exclusion is indexed to roughly $130,000 per qualifying person. A married couple who both work abroad and both qualify can each claim their own exclusion, sheltering a combined amount well above $250,000 of foreign earned income.

What is the difference between the bona fide residence and physical presence tests?

The bona fide residence test requires you to be a genuine resident of a foreign country for an uninterrupted period that includes a full calendar year. The physical presence test only requires you to be physically present in foreign countries for at least 330 full days during any rolling 12-month period. Physical presence is a pure day-count; bona fide residence looks at the nature of your ties abroad.

Does the Foreign Earned Income Exclusion cover investment income?

No. The FEIE applies only to earned income — wages, salaries, professional fees, and self-employment income for services performed abroad. Dividends, interest, capital gains, rental income, and pension distributions are not earned income and cannot be excluded. Use the foreign tax credit to address tax on that passive income.

What is the foreign housing exclusion?

On top of the income exclusion, qualifying expats can exclude or deduct a portion of employer-provided housing costs above a base amount. The housing exclusion is capped as a percentage of the FEIE, with higher caps for designated high-cost cities. It's claimed on the same Form 2555 as the income exclusion.

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Expats / Expatriate Tax

The Foreign Earned Income Exclusion: How Expats Shield Six Figures From US Tax

The Foreign Earned Income Exclusion lets qualifying Americans abroad exclude roughly $130,000 of foreign earnings from US tax. Here's how Form 2555, the two residency tests, and the housing exclusion actually work.

SMAART Tax Team

February 24, 2026

7 min read