The US Internal Revenue Service (IRS) has issued Notice 2025-16, outlining the housing expense limits under section 911 of the Internal Revenue Code for 2025.

This notice provides adjustments to the limitation on housing expenses for purposes of section 911 of the Internal Revenue Code for specific locations for 2025. 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. 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 130,000 for 2025.

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 2025 is USD 20,800 (USD 130,000 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.

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 39,000 (USD 130,000 x .30) for 2025.

However, section 911(c)(2)(B) authorizes the Secretary to issue regulations or other guidance to adjust the percentage under section 91 (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 limit on housing expenses may be adjusted to account for geographic variations in housing costs across different regions of the United States. Details of these location-based adjustments can be found in Section 3 of Notice 2025-16.

The adjusted limits for various locations all exceed USD 39,000, with some reaching significantly higher amounts—for example, a housing expense limit of USD 43,704 in Denmark.

Notice 2025-16 takes effect on 1 January 2025, but taxpayers can apply the 2025 adjusted housing limits to their 2024 taxable year if the 2025 value for their location is higher than the 2024 value.