Image by Andrea Piacquadio via Pexels
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If you move overseas for a job, you’ll still owe U.S. taxes. But you could qualify for some tax breaks on that income you earn abroad, including for your residential costs. And when expatriates work in one of the world’s more expensive real estate markets, the IRS also them a larger housing tax break.
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You love your new job in the United Kingdom, and the flat you found in London is perfect. But you also have the Internal Revenue Service as a roommate, at least figuratively.
The United States’ worldwide tax system for individuals means that as a U.S. citizen you remain a U.S. taxpayer, regardless of where you live. That makes you responsible for filing federal tax returns on your overseas earnings.
Uncle Sam, however, does provide some tax breaks to his citizens living and working abroad.
They get more time to file, with a June 15 deadline.
U.S. taxpayers living around the world also don’t have to count some of the income they earn when they file their return with the IRS. You can read more about this foreign earned income exclusion (FEIE) amount in Part 7 of the ol’ blog’s 2026 annual inflation and taxes series. Quick preview: The 2026 FEIE is $132,900.
Your overseas housing costs also get special tax consideration, also noted in the inflation series Part 7. And when you live in an expensive real estate market abroad, the IRS makes additional adjustments for the higher costs of finding a flat, appartement, villa, casa, haus, or any other dwelling in a place with a language beyond my rudimentary translation skills.
The locales with higher adjustments for 2026 are listed in IRS Notice 2026-25, published April 20 in Internal Revenue Bulletin 2026-17.
Here’s an overview of this year’s housing tax exclusion increases for U.S. taxpayers living in expensive overseas cities.
Annual housing abroad adjustments: Since costs of living vary widely, the U.S. Department of State tracks the worldwide housing amounts and the IRS, per its annual notice, makes housing tax exclusion adjustments “based on geographic differences in housing costs relative to housing costs in the United States.”
Basically, it grants an allowance to employees officially stationed in a foreign location where the cost of living, exclusive of quarters costs, is substantially higher. This lets U.S. taxpayers in those designated locales to exclude from their income (or deduct, if self-employed) an amount greater than the maximum housing expenses amount, which for 2026 is $39,870.
So, just where in the world are the costliest abodes that earn the added IRS attention?
Since I’ve long dreamed of living in Italy — Quick aside: the second season of Stanley Tucci’s culinary adventures in Italia premieres May 11 on National Geographic channel, and the next day on streamers Disney+ and Hulu. — I scrolled down the new notice’s table to see which Italian cities are considered overly expensive vis-à-vis U.S. residential markets.
In 2026 there are six locales in that Mediterranean peninsula nation, up from five the year before, that get higher full-year housing allowances. They are —
- Genoa at $41,800
- La Spezia at $40,400
- Milan at $73,200
- Naples at $50,300
- Rome at $49,000
- Vicenza at $40,900
Italian add-on and more: The new addition this year is Vicenza, a city in the Veneto region of northeast Italy. It’s known for its elegant buildings designed by the Italian Renaissance architect Andrea Palladio.
The stage at the Teatro Olimpico in Vicenza, showing the three-dimensional sets designed by 16th-century architect Andrea Palladio. (Photo by Redmarkviolinist at English Wikipedia, CC BY-SA 3.0)
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The expatriate example that started this post gets $68,600 for London accommodations.
Other notable foreign locales with larger housing allowances include Hong Kong, China, with a $114,300 housing allowance; Osaka-Kobe, Japan, with $90,664 allowed for housing; and Geneva, Switzerland, with a housing cost cap of $116,900.
Closer to the IRS’ home in Washington, D.C., a U.S. taxpayer living in Toronto, Ontario, Canada gets a housing amount of $62,700. If you work south of the U.S. border, you’re given an allowance of $47,900 for a place in Mexico City.
And if that promotion in Moscow, Russia, is just too good to turn down, you would get a $108,000 housing allowance for being Vladimir Putin’s neighbor.
Year change choice: Long-time U.S. residents abroad have already noticed that in many places, the foreign housing allowance stayed the same or decreased. Again, that’s because it’s based on comparisons to the U.S. real estate market, which has fluctuated in recent years.
Because of these variances, the IRS says that if the limitation on housing expenses is higher for tax year 2026 than the adjusted limitations for the prior year, qualified taxpayers can apply 2026 amounts to their 2025 tax returns.
Wherever in this big old world that your work might take you, check the IRS’ latest higher housing allowance list to see if your location is there.
You also can find more on at IRS.gov on the foreign housing exclusion or deduction, as well as in chapter 4 of IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.
You also might find these items of interest:
- Tourist taxes add to international travel costs
- As an American, Pope Leo XIV also must answer to IRS
- SCOTUS refuses tax-related passport case, letting the travel document revocation law stand
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