>>>News Center >>2007 US Tax Update               


What¡¯s new for 2007 that will impact U.S. taxpayers living abroad?

  • Foreign Earned Income Exclusion (FEIE) increased:
    IRS has increased the maximum foreign earned income exclusion threshold from $82,400 to $85,700.
  • Foreign Housing Exclusion (FHE ) also increased:
    Excludable foreign housing exclusion limitation and un-excludable foreign housing expense base amount are increased for 2007.

1) Excludable foreign housing expense limitation

2007 excludable foreign housing expense limitation for most cities is $25,710. For high living cost cities, the limitation has been increased. Beijing, Shanghai and Hong Kong are identified as high cost localities in China and the new limitation for Beijing, Shanghai and Hong Kong on housing expenses has been set as follows for 2007:

Location             Daily limitation        Annual limitation       Maximum Exclusion
                           US$                        US$                          US$
Beijing:               134.62                     49,137                     35,425
Shanghai:          156.17                      57,001                     43,289
Hong Kong:        313.15                     114,300                  100,588

2) Un-excludable base amount

The un-excludable foreign housing base amount has been increased to $37.57 per day and $13,712 per year accordingly.
*Maximum Foreign Housing Exclusion Allowed = Excludable Limitation - Un-excludable Base Amount

3) You pay more US taxes on the same taxable income since 2006

  • As a reminder, new tax law since 2006 has applied higher tax rate by adding back the exclusion to determine the rate of tax to ensure that US expatriate are subject to the same US tax rates on income as taxpayers without FEIE and FHE in the US.? High income earners should get started early to minimize interest and penalty cost if any tax due cannot be paid by April 15th.
  • A complete table of the adjusted limitation on housing expenses for 2007 and detailed instructions for claiming foreign earned income exclusion and foreign housing exclusion can be found in IRS website: http://www.irs.gov/pub/irs-pdf/i2555.pdf, Instructions for Form 2555. Or please contact us if you have any questions.

Other matters:

2007 US Income Tax Rate
2007 US income tax rate for different filing status can be found via following link:http://www.irs.gov/formspubs/article/0,,id=164272,00.html

Other various changes, such as Two-year extension of the reduced rates on Capital Gains and Dividends; AMT tax relief; Conversion to Roth IRAs etc remain in effect for 2007 US income tax filing.

State Administration of Taxation
Beijing Local Taxation Bureau
Shanghai Taxation Bureau