6. Foreign Issues
2007 Changes
Foreign Earned Income and Housing Exclusions
Exclusion amount
The maximum foreign earned income exclusion has increased to $85,700. Housing expenses—base amount. The base housing amount has increased to $37.57 per day, or $13,712 for an entire calendar year.
Foreign Tax Credit
Income categories eliminated
The following categories of income have been eliminated for purposes of computing the foreign tax credit limit. Income that previously fell in these categories is either passive category income or general category income.
High withholding tax interest.
Financial services income.
Shipping income.
Dividends from a domestic international sales corporation (DISC) or former DISC.
Certain distributions from a foreign sales corporation (FSC) or former FSC.
Recharacterization of overall domestic loss
If you have an overall domestic loss for any tax year beginning after 2006, you must recharacterize a portion of your U.S. source taxable income in succeeding years as foreign source taxable income for purposes of the foreign tax credit. For more information, see Publication 514 or the Instructions for Form 1116. Country-by-country reporting no longer required of mutual fund or other regulated investment company (RIC) shareholders. If you claim a foreign tax credit in 2007 or later years for your share of foreign taxes paid by a mutual fund or other RIC, you no longer have to report the income or taxes paid on a country-by-country basis. See the Instructions for Form 1116.
2008 Changes
Foreign Earned Income and Housing Exclusions
Exclusion amount
For 2008, the maximum foreign earned income exclusion has increased to $87,600. Housing expenses—base amount. The base housing amount has increased to $38.30 per day, or $14,016 for an entire calendar year.
Certain Distributions to Nonresident Aliens No Longer Exempt
The exemption from tax on certain interest-related dividends and short-term capital gain dividends paid by a mutual fund or other regulated investment company will not apply to any tax year of the company beginning after 2007.
