Foreign Earned Income Exclusion & Moving Expenses???

Use regular form 2555. That form does not require you to have no moving expenses. I think you should be able to take both the foreign earned income exclusion and moving expenses.

But before you do that, why do they ask you to have zero moving expenses for 2555-EZ? Is it supposed to reduce your foreign earned income exclusion or something like that? I don't see any such thing on form 2555 or the instructions of it.

I have no idea why they require it. The pre-requisites of the form are as follows.

"You may use this form if you:

- Are a US citizen or resident alien

- Earned wages/salaries in a foreign country.

- Had total foreign earned income of $85,700 or less

- Are filing a calendar year that covers a 12-month period

And you:

- Do not have self-employment income

- Do not have business/moving expenses. Do not claim the foreign housing exclusion or deduction."

Thanks for the reply. I thought I had seen somewhere that I couldn't deduct the expenses even using the standard 2555. But now I can't seem to find that entry. I'll post again if I find it.

Yes, try to find that quote. The instructions form form 3903 say

Filers of Form 2555 If you file Form 2555, Foreign Earned Income, to exclude any of your income or housing costs, report the full amount of your deductible moving expenses on Form

3903 and on Form 1040. Report the part of your moving expenses that is not allowed because it is allocable to the excluded income on the appropriate line of Form 2555. For details on how to figure the part allocable to the excluded income, see Pub. 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

What is the appropriate line of 2555?

Then take a look at

Allocation of Moving Expenses

When your new place of work is in a foreign country, your moving expenses are directly connected with the income earned in that foreign country. If you exclude all or part of the income that you earn at the new location under the foreign earned income exclusion or the foreign housing exclusion, you cannot deduct the part of your moving expense that is allocable to the excluded income.

Also, you cannot deduct the part of the moving expense related to the excluded income for a move from a foreign country to the United States if you receive a reimbursement that you are able to treat as compensation for services performed in the foreign country. Year to which expense is connected. The moving expense is connected with earning the income (including reimbursements, as discussed in chapter 4 under Reimbursement of moving expenses) either entirely in the year of the move or in 2 years. It is connected with earning the income entirely in the year of the move if you qualify for the foreign earned income exclusion under the bona fide residence test or physical presence test for at least 120 days during that tax year.

If you do not qualify under either the bona fide residence test or the physical presence test for at least 120 days during the year of the move, the expense is connected with earning the income in 2 years. The moving expense is connected with the year of the move and the following year if the move is from the United States to a foreign country. The moving expense is connected with the year of the move and the preceding year if the move is from a foreign country to the United States.

Amount allocable to excluded income. To figure the amount of your moving expense that is allocable to your excluded foreign earned income (and not deductible), you must multiply your total moving expense deduction by a fraction. The numerator (top number) of the fraction is the total of your excluded foreign earned income and housing amounts for both years and the denominator (bottom number) of the fraction is your total foreign earned income for both years.

Example.

You are transferred by your employer on November 1, 2006, to Monaco. Your tax home is in Monaco, and you are a bona fide resident of Monaco for the entire tax year 2007. In 2006, you paid $6,000 for allowable moving expenses for your move from the United States to Monaco. You were fully reimbursed (under a nonaccountable plan) for these expenses in the same year. The reimbursement is included in your income. Your only other income consists of $14,000 wages earned in 2006 after the date of your move, and $85,700 wages earned in Monaco for 2007.

Because you did not meet the bona fide residence test for at least 120 days during 2006, the year of the move, the moving expenses are for services you performed in both 2006 and the following year, 2007. Your total foreign earned income for both years is $105,700, consisting of $14,000 wages for 2006, $85,700 wages for 2007, and $6,000 moving expense reimbursement for both years.

You have no housing exclusion. The total amount you can exclude is $99,245, consisting of the $85,700 full-year exclusion for 2007 and a $13,545 part-year exclusion for 2006 ($82,400 times the fraction of 60 qualifying bona fide residence days over 365 total days in the year). To find the part of your moving expenses that is not deductible, multiply your $6,000 total expenses by the fraction $99,245 over $105,700. The result, $5,634, is your nondeductible amount.

So basically if you moved early in the year, it's as simple as for US residents. When did you move?

Oh, I get it now.

I paid the moving expenses out of pocket; I wasn't reimbursed. That's the confusion I was having. Good to know I can deduct it

I moved on June 30, exactly the middle of the year. I have already filed for an extension past July 1, 2008 so I will meet the physical presence test. The rest seems pretty easy from there...

Thanks