The Tax Home Concept: Why Where You Live Isn't Always Your Tax Home

For purposes of the Foreign Earned Income Exclusion, you must have your "tax home" in a foreign country — but "tax home" doesn't always mean where you live. The IRS defines tax home as your regular or principal place of business, not your family home. If your employer is in the US and you're only temporarily working abroad, the IRS may determine that your tax home remains in the US, even if you're physically abroad for years. To establish a foreign tax home, the IRS looks at where you conduct your trade or business — ideally, you work for a foreign employer or have a self-employed trade based in the foreign country. Expats who frequently travel back to the US for work or maintain a US business base need to be careful that their tax home has actually shifted abroad before claiming the FEIE. The tax home test is a threshold requirement — failing it disqualifies you from the FEIE even if you pass the Physical Presence or Bona Fide Residence test.