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If you are a U.S. citizen or a U.S. resident alien living in a foreign country, you are subject to the same U.S. income tax laws that apply to citizens and resident aliens living in the United States. But if you qualify, use Form 2555 to exclude a limited amount of your foreign earned income. Also, use it to claim the housing exclusion or deduction. You cannot exclude or deduct more than your foreign earned income for the tax year.
You may be able to use Form 2555-EZ, Foreign Earned Income Exclusion, if you did not have any self-employment income for the year, your total foreign earned income did not exceed $85,700, you do not have any business or moving expenses, and you do not claim the housing exclusion or deduction. For more details, see Form 2555-EZ and its separate instructions.
You qualify for the tax benefits available to taxpayers who have foreign earned income if both of the following apply.
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You meet the tax home test (discussed later on this page).
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You meet either the bona fide residence test (see page 2) or the physical presence test (see page 2).
Generally, if you were in Cuba in violation of U.S. travel restrictions, the following rules apply:
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Any time spent in Cuba cannot be counted in determining if you qualify under the bona fide residence or physical presence test,
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Any income earned in Cuba is not considered foreign earned income, and
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Any housing expenses in Cuba (or housing expenses for your spouse or dependents in another country while you were in Cuba) are not considered qualified housing expenses.
Note.
If you performed services at the U.S. Naval Base at Guantanamo Bay, you were not in violation of U.S. travel restrictions.
Pub. 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, has more information about the bona fide residence test, the physical presence test, the foreign earned income exclusion, and the housing exclusion and deduction. You can get this publication from most U.S. embassies and consulates or by writing to: National Distribution Center, P.O. Box 8903, Bloomington, IL 61702-8903. You can also download this publication (as well as other forms and publications) from the IRS website at www.irs.gov.
If your tax home was in a foreign country and you were a bona fide resident of, or physically present in, a foreign country and had to leave because of war, civil unrest, or similar adverse conditions, the minimum time requirements specified under the bona fide residence and physical presence tests may be waived. You must be able to show that you reasonably could have expected to meet the minimum time requirements if you had not been required to leave. Each year the IRS will publish in the Internal Revenue Bulletin a list of countries and the dates they qualify for the waiver. If you left one of the countries during the period indicated, you can claim the tax benefits on Form 2555, but only for the number of days you were a bona fide resident of, or physically present in, the foreign country.
If you can claim either of the exclusions or the housing deduction because of the waiver of time requirements, attach a statement to your return explaining that you expected to meet the applicable time requirement, but the conditions in the foreign country prevented you from the normal conduct of business. Also, enter “Claiming Waiver” in the top margin on page 1 of your 2007 Form 2555.
A 2007 calendar year Form 1040 is generally due April 15, 2008.
However, you are automatically granted a 2-month extension of time to file (to June 16, 2008, for a 2007 calendar year return) if, on the due date of your return, you live outside the United States and Puerto Rico and your tax home (defined earlier) is outside the United States and Puerto Rico. If you take this extension, you must attach a statement to your return explaining that you meet these two conditions.
The automatic 2-month extension also applies to paying the tax. However, interest is charged on the unpaid tax from the regular due date (April 15, 2008, for a 2007 calendar year return) until it is paid.
To choose either of the exclusions, complete the appropriate parts of Form 2555 and file it with your Form 1040 or Form 1040X, Amended U.S. Individual Income Tax Return. Your initial choice to claim the exclusion must usually be made on a timely filed return (including extensions) or on a return amending a timely filed return. However, there are exceptions. See Pub. 54 for details.
Once you choose to claim an exclusion, that choice remains in effect for that year and all future years unless it is revoked. To revoke your choice, you must attach a statement to your return for the first year you do not wish to claim the exclusion(s). If you revoke your choice, you cannot claim the exclusion(s) for your next 5 tax years without the approval of the Internal Revenue Service. See Pub. 54 for more information.
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