The IRS has issued Notice 2026-25, updating housing expense limitations for Americans living abroad under Section 911, with the base housing amount set at USD 21,264 and maximum housing expenses capped at USD 39,870 for 2026, though higher limits apply for certain high-cost locations.
The US IRS has released Notice 2026-25, setting out updated limits on housing expenses for 2026 under Section 911 of the Internal Revenue Code.
This notice provides adjustments to the limitation on housing expenses for purposes of section 911 of the Internal Revenue Code for specific locations for 2026. These adjustments are based on geographic differences in housing costs relative to housing costs in the United States.
Section 911 allows a qualified individual to elect to exclude from gross income the foreign earned income and to exclude or deduct the 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 § 911(c)(1).
For this purpose, the base housing amount for the taxable year is limited to an amount that is tied to the maximum foreign earned income exclusion amount of the qualified individual, which is USD 132,900 for 2026. See § 911(c)(1)(B). Specifically, the base housing amount is 16% of the maximum foreign earned income exclusion amount (computed on a daily basis), multiplied by the number of days in the applicable period that fall within the taxable year. Assuming that the entire taxable year of a qualified individual is within the applicable period, the base housing amount for 2026 is USD 21,264 (USD 132,900 x .16).
Similarly, the housing expense amount is also limited, based on a percentage of the maximum foreign earned income exclusion amount. Specifically, the limit on such housing expenses generally equals 30% of the maximum foreign earned income exclusion amount (computed on a daily basis), multiplied by the number of days in the applicable period for which the taxpayer is a qualified individual. See § 911(c)(2)(A) and (d)(1).
Thus, under this general limitation, a qualified individual whose entire taxable year is within the applicable period is limited to maximum housing expenses of USD 39,870 (USD 132,900 x .30) for 2026.
However, section 911(c)(2)(B) authorises 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 Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) have published annual notices concerning the limitation on the section 911 housing cost amounts since the 2006 taxable year.
The foreign housing exclusion applies only to amounts considered paid for with employer-provided amounts, which include any amounts paid to you or paid or incurred on your behalf by your employer that are taxable foreign earned income to you for the year (without regard to the foreign earned income exclusion). The housing deduction applies only to amounts paid for with self-employment earnings.
For more background on the foreign housing exclusion, see https://www.irs.gov/individuals/international-taxpayers/foreign-housing-exclusion-ordeduction
