The Treasury Department and the Internal Revenue Service announced in a notice that individuals who work outside the United States and live in foreign countries with high housing costs will be able to deduct, or exclude, a greater portion of their housing costs.U.S. citizens and residents are generally subject to U.S. taxes on their worldwide income, and under the Tax Increase Prevention and Reconciliation Act of 2005, several changes were made to the Tax Code, one of which limited the amount of housing costs that could be deducted -- setting a cap of $11,536.

However, the act did give the Treasury Department the ability to adjust the new limitation based on geographic differences in housing costs relative to housing costs in the United States.  The Treasury recently decided to exercise that authority and increase the housing cost limitation, for specific locations. The relief provided by the notice is retroactive to the effective date of the act.

Adjustments for dozens of cities in more than 40 other countries are included in the notice. For examples, expatriate Americans living in Hong Kong ($101,116 ), London ($58,916) and Venezuela ($52,400) will be partially spared from a tax increase on their employer-sponsored housing allowances.

The full notice is available at

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