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Internal Revenue Bulletin:  2006-43 

October 23, 2006 

Notice 2006-87

Determination of Housing Cost Amount Eligible for Exclusion or Deduction

This notice provides adjustments to the limitation on housing expenses for purposes of section 911 of the Internal Revenue Code (Code) for specific locations, on the basis of geographic differences in housing costs relative to housing costs in the United States.

Section 911(a) of the Code allows a qualified individual to elect to exclude from U.S. gross income the foreign earned income and housing cost amount of such individual. Section 911(c)(1), as amended by section 515 of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), defines the term “housing cost amount” as an amount equal to the excess of (A) the housing expenses of an individual for the taxable year to the extent such expenses do not exceed the amount determined under section 911(c)(2), over (B) 16 percent of the exclusion amount (computed on a daily basis) in effect under section 911(b)(2)(D) for the calendar year in which such taxable year begins ($67.73 per day for 2006, or $82,400 for the full year), multiplied by the number of days of that taxable year within the applicable period described in section 911(d)(1). The applicable period is the period during which the individual meets the tax home requirement of section 911(d)(1) and either the bona fide residence requirement of section 911(d)(1)(A) or the physical presence requirement of section 911(d)(1)(B). Assuming that the entire taxable year of a qualified individual is within the applicable period, the section 911(c)(1)(B) amount for 2006 is $13,184 ($82,400 x .16).

Section 515 of TIPRA also added a new section 911(c)(2)(A) of the Code, which limits the housing expenses taken into account in section 911(c)(1)(A) to an amount equal to the product of — (i) 30 percent (adjusted as may be provided under the Secretary’s authority under section 911(c)(2)(B)) of the amount in effect under section 911(b)(2)(D) for the calendar year in which the taxable year of the individual begins, multiplied by (ii) the number of days of that taxable year within the applicable period described in section 911(d)(1). Thus, for the year 2006, a qualified individual whose entire taxable year is within the applicable period is limited to maximum housing expenses of $24,720 ($82,400 x .30). Accordingly, the maximum housing cost amount a qualified individual may exclude from income in year 2006 is $11,536 ($24,720 - $13,184). The TIPRA changes apply to taxable years beginning after December 31, 2005.

To the extent the housing cost amount of any individual for any taxable year is not attributable to employer provided amounts, section 911(c)(4)(A) of the Code provides that such amount shall be treated as a deduction in computing adjusted gross income. Under section 911(c)(4)(B), however, the amount of this deduction is limited to the excess of the foreign earned income of the individual for the taxable year over the amount of such income excluded from gross income under section 911(a).

In addition, section 911(d)(7) of the Code prohibits the total amount excluded or deducted under section 911 for the taxable year from exceeding the individual’s foreign earned income for such year. Further, section 911(b)(1)(B) excludes from the definition of foreign earned income certain amounts, including amounts paid by the United States or an agency thereof to an employee of the United States or an agency thereof. As a result, the exclusion or deduction from gross income of the housing cost amount under section 911 is not available to an individual whose earned income consists solely of amounts paid by the United States or an agency thereof to an employee of the United States or an agency thereof.

Section 911(c)(2)(B) of the Code authorizes the Secretary to issue regulations or other guidance to adjust the percentage under section 911(c)(2)(A)(i) based on geographic differences in housing costs relative to housing costs in the United States. The Joint Explanatory Statement of the Committee of Conference accompanying TIPRA states the conferees’ intent that the Secretary be permitted to use publicly available data, such as the Quarterly Report Indexes published by the U.S. Department of State or any other information that the Secretary deems reliable, in making adjustments. See H.R. Conf. Rep. No. 304, 109th Cong., 1st Sess. 309 (2005).

Accordingly, the following table, which was derived from the Living Quarters Allowance table prepared by the Office of Allowances of the U.S. Department of State as of August 20, 2006, identifies locations within countries with high housing costs relative to housing costs in the United States, and provides an adjusted limitation on housing expenses for a qualified individual incurring housing expenses in one or more of these high cost localities in 2006 to use (in lieu of the otherwise applicable limitation of $24,720) in determining his or her housing expenses under section 911(c)(2)(A) of the Code. The table will be updated each year by administrative pronouncement (e.g., through issuing a notice, amending Form 2555 or the instructions thereto, or by making a revised table available on the IRS website at, beginning in 2007, based on the living quarters allowance for employees of the U.S. Department of State who are in Group 2, with family, contained in the first Living Quarters Allowance table released in that calendar year by the Office of Allowances of the U.S. Department of State.

Country Location Limitation on Housing Expenses (daily) Limitation on Housing Expenses (full year)
Argentina Buenos Aires 120.27 43,900
Austria Vienna 74.52 27,200
Bahamas, The Nassau 136.16 49,700
Bahrain Bahrain 120.55 44,000
Barbados Barbados 103.29 37,700
Belgium Brussels 124.93 45,600
Belgium SHAPE/Chievres 91.23 33,300
Bermuda Bermuda 71.78 26,200
Bosnia-Herzegovina Sarajevo 74.52 27,200
Brazil Brasilia 86.30 31,500
Brazil Rio de Janeiro 96.16 35,100
Brazil Sao Paolo 127.40 46,500
Canada Ottawa 107.40 39,200
Canada Calgary 73.42 26,800
Canada Halifax 68.49 25,000
Canada London, Ontario 70.41 25,700
Canada Montreal 138.90 50,700
Canada Toronto 113.70 41,500
Canada Vancouver 106.85 39,000
Canada Victoria 76.71 28,000
Canada Winnipeg 68.22 24,900
Chile Santiago 96.71 35,300
Colombia Bogota 148.22 54,100
Colombia All cities other than Bogota and Barranquilla 123.01 44,900
Costa Rica San Jose 71.78 26,200
Dominican Republic Santo Domingo 110.96 40,500
Ecuador Quito 81.92 29,900
Ecuador Guayaquil 84.38 30,800
El Salvador San Salvador 69.04 25,200
France Paris 217.26 79,300
France Le Havre 97.26 35,500
France Lyon 139.45 50,900
France Marseille 117.81 43,000
France Montpellier 115.34 42,100
Germany Berlin 132.05 48,200
Germany Bad Aibling 92.05 33,600
Germany Baumholder 98.08 35,800
Germany Berchtesgaden 70.14 25,600
Germany Darmstadt 107.67 39,300
Germany Frankfurt am Main 112.88 41,200
Germany Friedberg 86.03 31,400
Germany Garmisch-Partenkirchen 93.15 34,000
Germany Geilenkirchen 73.97 27,000
Germany Germersheim 81.64 29,800
Germany Giessen 84.38 30,800
Germany Grafenwoehr 69.86 25,500
Germany Hanau 116.44 42,500
Germany Hannover 80.55 29,400
Germany Heidelberg 107.40 39,200
Germany Kaiserslautern, Landkreis 121.64 44,400
Germany Munich 115.62 42,200
Germany Nuernberg 68.22 24,900
Germany Stuttgart 113.97 41,600
Germany Wiesbaden 129.04 47,100
Germany Wuerzberg 93.42 34,100
Germany All cities other than Augsburg, Bad Aibling, Bad Kreuznach, Baumholder, Berchtesgaden, Berlin, Bonn, Bremen, Bremerhaven, Cologne, Darmstadt, Duesseldorf, Flensburg, Frankfurt am Main, Friedberg, Garmisch-Partenkirchen, Geilenkirchen, Germersheim, Giessen, Grafenwoehr, Hamburg, Hanau, Hannover, Heidelberg, Heilbron, Kaiserslautern, Landkreis, Karlsruhe, Kerpen, Koblenz, Leipzig, Muenster, Munich, Nuernberg, Osterholz-Scharmbeck, Rheinberg, Stuttgart, Wiesbaden, Worms, and Wuerzburg. 92.60 33,800
Greece Athens 86.85 31,700
Greece Thessaloniki 84.11 30,700
Guatemala Guatemala City 103.01 37,600
Holy See, The Holy See, The 146.58 53,500
Hong Kong Hong Kong 313.15 114,300
Hungary Budapest 89.04 32,500
Ireland Limerick 69.04 25,200
Italy Rome 146.58 53,500
Italy Catania 75.89 27,700
Italy Genoa 103.29 37,700
Italy Gioia Tauro 85.48 31,200
Italy Leghorn 91.78 33,500
Italy Milan 218.63 79,800
Italy Naples 120.82 44,100
Italy Pordenone-Aviano 100.82 36,800
Italy Sardinia 74.79 27,300
Italy Turin 109.32 39,900
Italy Verona 69.86 25,500
Italy Vicenza 101.92 37,200
Italy All cities other than Avellino, Brindisi, Catania, Florence, Gaeta, Genoa, Gioia Tauro, Leghorn, Milan, Naples, Nettuno, Pordenone-Aviano, Rome, Sardinia, Turin, Verona, and Vicenza. 84.11 30,700
Jamaica Kingston 112.88 41,200
Japan Tokyo 234.79 85,700
Japan Akizuki 69.04 25,200
Japan Gotemba 75.07 27,400
Japan Misawa 69.32 25,300
Japan Nagoya 80.00 29,200
Japan Okinawa Prefecture 123.56 45,100
Japan Osaka-Kobe 78.08 28,500
Japan Sasebo 81.10 29,600
Japan Tokyo-to 99.73 36,400
Japan Yokohama 131.23 47,900
Japan Yokosuka 113.42 41,400
Korea Seoul 153.97 56,200
Korea Chinhae 78.90 28,800
Korea Chunchon 73.70 26,900
Korea Kwangju 78.08 28,500
Korea Osan AB 88.77 32,400
Korea Pusan 81.92 29,900
Korea Taegu 92.88 33,900
Korea Tongduchon 72.33 26,400
Korea Uijongbu 101.92 37,200
Korea Waegwan 74.25 27,100
Korea All cities other than Changwon, Chinhae, Chunchon, Kunsun, Kwangju, Osan AB, Pusan, Seoul, Taegu, Tongduchon, Uijongbu, and Waegwan. 83.29 30,400
Kuwait Kuwait City 163.84 59,800
Kuwait All cities other than Kuwait City 146.85 53,600
Luxembourg Luxembourg 120.27 43,900
Macedonia Skopje 96.99 35,400
Malaysia Kuala Lampur 96.71 35,300
Malaysia All cities other than Kuala Lampur 92.33 33,700
Malta Malta 100.00 36,500
Mexico Mexico City 102.74 37,500
Netherlands Hague, The 150.41 54,900
Netherlands Amsterdam 144.93 52,900
Netherlands Brunssum 83.01 30,300
Netherlands Rotterdam 105.48 38,500
Netherlands All cities other than Amsterdam, Brunssum, Coevorden, the Hague, Margraten, and Rotterdam. 76.71 28,000
Netherlands Antilles Aruba 90.41 33,000
New Zealand Wellington 73.15 26,700
New Zealand Auckland 77.26 28,200
Norway Oslo 70.96 25,900
Norway Stavanger 90.41 33,000
Norway All cities other than Oslo and Stavanger. 91.78 33,500
Panama Panama City 88.22 32,200
Peru Lima 74.79 27,300
Portugal Lisbon 133.70 48,800
Russia Moscow 75.34 27,500
Rwanda Kigali 86.30 31,500
Singapore Singapore 117.53 42,900
Spain Madrid 99.18 36,200
Spain Rota 85.48 31,200
Spain Valencia 102.74 37,500
Switzerland Bern 139.45 50,900
Switzerland Geneva 192.60 70,300
Switzerland All cities other than Bern and Geneva. 90.14 32,900
Thailand Bangkok 100.27 36,600
Turkey Ankara 84.93 31,000
Turkey Izmir-Cigli 86.58 31,600
Ukraine Kiev 76.99 28,100
United Kingdom London 197.53 72,100
United Kingdom Bath 103.84 37,900
United Kingdom Bristol 78.08 28,500
United Kingdom Cambridge 109.32 39,900
United Kingdom Caversham 187.40 68,400
United Kingdom Cheltenham 111.51 40,700
United Kingdom Fairford 88.49 32,300
United Kingdom Farnborough 130.14 47,500
United Kingdom Felixstowe 110.96 40,500
United Kingdom Harrogate 110.41 40,300
United Kingdom High Wycombe 157.53 57,500
United Kingdom Lakenheath 140.00 51,100
United Kingdom Loudwater 133.42 48,700
United Kingdom Oxfordshire 79.18 28,900
United Kingdom Rochester 101.37 37,000
United Kingdom Wiltshire 96.16 35,100
United Kingdom All cities other than Bath, Belfast, Birmingham, Bristol, Brough, Bude, Cambridge, Caversham, Chelmsford, Cheltenham, Chicksands, Dunstable, Edinburgh, Edzell, Fairford, Farnborough, Felixstowe, Ft. Halstead, Glenrothes, Harrogate, High Wycombe, Hythe, Lakenheath, London, Loudwater, Nottingham, Oxfordshire, Rochester, Welford, West Byfleet, and Wiltshire. 96.16 35,100
Venezuela Caracas 143.56 52,400
Vietnam Hanoi 128.22 46,800

A qualified individual incurring housing expenses in one or more of the high cost localities identified above for the year 2006 may use the adjusted limit provided in the table (in lieu of $24,720) in determining his or her housing cost amount on Form 2555, Foreign Earned Income. A qualified individual who does not incur housing expenses in a locality identified above for the year 2006 is limited to maximum housing expenses of $67.73 per day ($24,720 per year) in determining his or her housing cost amount.


This notice is effective for taxable years beginning on or after January 1, 2006.


The principal author of this notice is Paul J. Carlino of the Office of Associate Chief Counsel (International). For further information regarding this notice, contact Mr. Carlino at (202) 622-3840 (not a toll-free call).

Request for Comments

Comments are requested on the method identified in the notice for annual updates to the list contained in this notice. If a taxpayer believes that the average housing costs for a specific location differ significantly from the amount provided in this notice, the IRS and Treasury Department are particularly interested in information on housing costs that can be verified through publicly available data. Comments may be submitted to CC:PA:LPD:PR (Notice 2006-87), Room 5203, Internal Revenue Service, PO Box 7604, Washington, DC 20044. Submissions may also be hand-delivered Monday through Friday between the hours of 8 a.m. and 4:30 p.m. to Crystal Mall 4, room 108, 1901 South Bell Street, Arlington, VA 22202, Attn: CC:PA:LPD:PR (Notice 2006-87). Submissions may also be sent electronically via the internet to the following email address: Include the notice number (Notice 2006-87) in the subject line.

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