Which line items on a London tenancy qualify under IRC section 911, how a part-year arrival prorates, and why the governing regulation is obsolete on the maths.
If you are a US citizen renting in London and you already qualify for the foreign earned income exclusion, the section 911 foreign housing exclusion shelters part of what you spend on that flat as well. It does not cover the whole rent: you drop a base amount off the bottom, cap the expenses at a London-specific limit the IRS republishes every January, and take the excess. The two edges that decide the number are which line items on a British tenancy count, and how the computation prorates if you were not here all year.
Most writing on this provision is a table of amounts, and those amounts are reset by notice every January. This article does the other half: the mechanics, which authority governs which part of the calculation — they are not the same authority, and one is two decades out of date on its face — and the current notice for the figures.
Nearly every guide cites "section 911" and a current-year IRS notice as though they were one coherent set of rules. They are not, and the seam between them is where the expensive mistakes live.
Here is the part no competing page mentions. The regulation has not been amended since 1985. The statute was rewritten in 2006 by the Tax Increase Prevention and Reconciliation Act, which replaced the base-amount formula and created both the expense cap and the high-cost locality adjustment — before that amendment there was no cap and no London table at all. The regulation was never conformed. Open it today and paragraph (c) still measures the base amount against a United States federal civil service pay grade, and its worked examples still run 1982 to 1984 fact patterns.
So if §1.911-4 looks nothing like your return, you have read it correctly. Cite the statute for the computation and the regulation for the expense definitions, and the two stop contradicting each other.
The included list at §1.911-4(b)(1) covers reasonable expenses attributable to housing in a foreign country for you and any spouse or dependents living with you: rent, the fair rental value of housing provided in kind by an employer, utilities other than telephone charges, real and personal property insurance, non-refundable fees paid for securing a leasehold, rental of furniture and accessories, household repairs, and residential parking.
The excluded list is where London tenancies get caught:
Two British specifics follow cleanly. A refundable tenancy deposit does not qualify, because it is not an expense you have paid at all — it is money held and returned. A non-refundable fee paid to secure the leasehold is expressly included. And everything is subject to a separate ceiling: §1.911-4(b)(4) denies reasonableness "to the extent that the expense is lavish or extravagant under the circumstances", a live constraint at the top of the Mayfair and Knightsbridge market and nowhere else in Britain.
The most searched question on the topic, and the one where published guidance is least reliable. You will find pages asserting flatly that UK council tax qualifies as an occupancy tax; no authority is cited, and the position is not that simple.
The test is not whether a charge feels like a housing cost. Statute and regulation both turn on character: housing expenses exclude interest and taxes "of the kind deductible under section 163 or 164", while the regulation's included list admits "occupancy taxes not described in paragraph (b)(2)(v)". So a category of occupancy charge does count and a category does not, and the line runs through what the charge is, not what it is called.
Neither the Instructions for Form 2555 nor Publication 54 names council tax; we searched the current instructions and the word does not appear. The same silence covers broadband — the authorities exclude telephone charges and pay television and say nothing about an internet connection — and it covers UK service charge, ground rent and tenancy renewal fees.
So these are positions to be taken on the facts of your tenancy agreement, not line items to assume. Worth taking seriously, because on a London rent they are not small; not worth guessing, because the guess sits on a return for years. Every return we prepare is reviewed and signed by a licensed professional — an IRS Enrolled Agent on the US side, an ACCA-qualified accountant on the UK side — and a judgement call like this is what that review is for.
This is where mid-year arrivals lose money, or claim too much. Read §911(c)(1)(B)(ii) and §911(c)(2)(A)(ii) side by side and they are word for word identical. Both the base housing amount and the location limit are multiplied by "the number of days of such taxable year within the applicable period described in subparagraph (A) or (B) of subsection (d)(1)" — the days inside your qualifying period. Form 2555 puts that on line 31 and defines it as the period during which you meet the tax home test and either the bona fide residence or the physical presence test.
Three consequences the published guidance skims:
That is why the annual notice publishes a daily figure beside each annual one, and why the instructions' Limit on Housing Expenses Worksheet is day-driven. Arrive part way through the year and the daily figure is the one you work from.
Absent from the ranking guides, and common among people who start in the City and end up in the commuter belt. If you moved and incurred housing expenses in more than one foreign location, you complete a separate limit worksheet for each location, entering the qualifying days you lived there, and add the results. The total days across those worksheets cannot exceed your line 31 figure.
That matters in Britain more than almost anywhere, because the notice's table is not a single UK entry. Several English towns are listed separately with their own limits, some higher than London's, while many large British cities are absent altogether and take the default. A move of forty minutes down a railway line can change your ceiling in either direction.
The instructions also note that an election to apply the following year's limits has been available in past years. Treat that as something the relevant year's notice must authorise, not a standing option.
Under §1.911-4(d)(2), "employer provided amounts" includes any salary paid by the employer to the employee, alongside housing reimbursements, tax-equalisation payments, compensation in kind at fair market value, and any amount the employer pays to a third party on your behalf. The regulation then says plainly that an individual "will only have earnings that are not employer provided amounts if the individual has earnings from self-employment."
So for a salaried American in London, all three common arrangements land in the same place. Whether the bank pays your landlord directly, reimburses the rent you paid, or pays you nothing but salary, your entire housing cost amount is attributable to employer-provided amounts and it is the exclusion. There is no choice to be made, and no planning point in restructuring the payment route for this purpose alone.
Two sharp edges specific to a generous London package:
If you have self-employment income, the portion of the housing cost amount attributable to non-employer-provided amounts becomes a deduction from gross income rather than an exclusion. A mixed case is split by a stated fraction — employer-provided amounts over foreign earned income — not by election.
The deduction is limited to foreign earned income in excess of what you have already excluded, which is why a self-employed filer whose whole income is swallowed by the earned income exclusion has nothing left to deduct against. Anything disallowed carries forward to the single succeeding tax year under §911(c)(4)(C), then dies. And the housing benefit reduces income tax, not self-employment tax.
Common in the City, and almost unanswered online. Where both spouses qualify and live in the same foreign household, the instructions are precise: on a joint return you may figure the housing amounts jointly or separately; filing separate returns, you must figure them separately. Figuring jointly means one spouse only claims, that spouse may aggregate both spouses' expenses subject to the limit, and if the claiming spouse has the shorter qualifying period, only that shorter period's expenses count.
Separate foreign households produce two claims only if the tax homes are not within reasonable commuting distance of each other and neither household is within reasonable commuting distance of the other spouse's tax home. For a couple split between London and the commuter belt, that test usually fails and the claims collapse into one.
The second foreign household rule is sometimes offered as a way to double a claim. It is not. It requires a separate abode maintained because of living conditions that are "dangerous, unhealthful, or otherwise adverse" — the regulation's own examples are warfare, civil insurrection, a drilling rig. A London fact pattern will not reach it.
The housing exclusion is not free. Excluded amounts still push your remaining income up the rate scale under the stacking rule in §911(f), and §911(d)(6) denies any deduction or credit — foreign tax credits included — properly allocable to excluded income. Where UK tax is high that second point can be decisive, and the housing exclusion sharpens the trade-off rather than softening it, because it enlarges the excluded slice. Both elections are standing elections that cannot casually be switched off and on again: see our notes on exclusion versus foreign tax credit, which year a revocation actually bites, and, if you carry US student debt, the effect on income-driven repayment.
Work from the tenancy agreement rather than memory — the split between rent, agency charges, deposits and renewal fees is where the qualifying items hide — fix your qualifying-day count before you touch the expense schedule, and read the current year's notice for your specific location rather than for "the UK". The IRS's foreign housing exclusion or deduction page links the operative one.
If you would rather have it reviewed than researched, this is what our US-UK tax specialists do. See what an engagement costs on our pricing page, model the position with our calculators, or book a consultation and bring the tenancy agreement. Every position we take is reviewed and signed by a licensed professional before it goes anywhere.