Foreign Housing Exclusion and Real Estate Taxes

I am not sure what you would be excluding. If you own your home outside the US, you don't have any excludable housing costs. The costs of owning your own home are not on the list of excludable housing costs. In fact, the rules specifically state that such costs are not excludable! Lanny K. Williams, CPA Nawarat, Williams & Co., Ltd. Income Tax Services for Expatriate Americans

Schedule A is the only place you can deduct mortgage interest and property taxes. The interest and property taxes are not housing expenses for purposes of the housing exclusion. Therefore, you may utilize the housing exclusion, if you can qualify, and take the deductions on schedule A.

Internal Revenue Code section 265 disallows a deduction for expenses allocable to tax-exempt income. I'm aware of one case involving this issue that the U.S. Tax Court has decided. That case is Induni v. Commissioner, 98 T.C. 618 (May 20, 1992). The taxpayer received a tax-free foreign housing allowance and deducted his mortgage interest. The Tax Court sustained the disallowance of the deduction. Frederick Lorca