The foreign earned income exclusion is voluntary. You can choose the foreign earned income exclusion and/or the foreign housing exclusion by completing the appropriate parts of Form 2555. Your initial choice of the exclusion(s) on Form 2555, Foreign Earned Income, generally must be made with:
a timely filed return (including any extensions),
a return amending a timely filed return, or
a late-filed return filed within 1 year from the original due date of the return (determined without regard to any extensions).
You can choose the exclusion on a return filed after the periods described above, provided you owe no federal income tax after taking the exclusion into account.
If you owe federal income tax after taking the exclusion into account, you can choose the exclusion on a return filed after the periods described above, provided you file before the IRS discovers that you failed to choose the exclusion(s). You must type or legibly print at the top of the first page of Form 1040 "FILED PURSUANT TO SECTION 1.911-7(a)(2)(i)(D)."
If you owe federal income tax after taking the exclusion into account and the IRS discovers that you failed to choose the exclusion, you must request a private letter ruling under Income Tax Regulation 301.9100-3 and according to the instructions contained in the first Revenue Procedure issued by the IRS each year.
Once you choose to exclude your foreign earned income and/or your foreign housing costs, that choice remains in effect for that year and all later years unless you revoke it. See Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad for instructions on how to revoke the election and the associated effects.
If you choose to exclude foreign-earned income, you can’t take a foreign tax credit or deduction for taxes on income you can exclude. If you do take a credit or deduction for any of those taxes in a later year, your election for the foreign earned income exclusion will be revoked beginning with that year. See Publication 54 for more information.
Additional child tax credit. You can’t take the additional child tax credit if you claim the foreign earned income exclusion.
Earned income credit. If you claim the foreign earned income exclusion, you don’t qualify for the earned income credit for the year. For more information on this credit, see Publication 596, Earned Income Credit.
Figuring tax on income not excluded. If you claim the foreign earned income exclusion, the housing exclusion, or both, you must figure the tax on your non-excluded income using the tax rates that would have applied had you not claimed the exclusions.
Foreign Tax Credit
Once you choose to exclude foreign earned income and/or foreign housing costs, you cannot take a foreign tax credit for taxes on income you excluded or could have excluded. If you do, one or both choices may be considered revoked. However, you can choose to take a foreign tax credit on any amount of foreign earned income that exceeds the amounts you excluded under the foreign earned income exclusion and/or the foreign housing exclusion.
Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.