On March 5, 2025, the U.S. Internal Revenue Service (IRS) released Notice 2025-16, which updates the list of foreign locations with high housing costs relative to the United States.1 The Notice is effective for taxable years beginning on or after January 1, 2025. However, if the 2025 adjusted housing limitation amounts are higher than those provided in 2024, taxpayers may elect to use the higher 2025 amounts on their 2024 federal income tax returns.2
WHY THIS MATTERS
This list is used for individuals living in foreign locations who claim the foreign housing cost exclusion on their U.S. federal income tax returns under section 911 of the Internal Revenue Code (I.R.C.). Employers seeking to accurately estimate the tax cost of an assignment from the United States to a foreign location may need to update their calculations to account for changes to the adjusted housing cost limitations.
Background
I.R.C. section 911 permits qualifying individuals whose tax home is in a foreign country, and who meet specific requirements as to residence or presence in a foreign country, to elect to exclude certain amounts of foreign earned income and foreign housing costs from U.S. federal income tax. The foreign earned income exclusion amount is indexed annually and the maximum amount for 2025 is $130,000. The housing cost exclusion generally is equal to the foreign housing expenses of the taxpayer to the extent they exceed a base amount equal to 16 percent of the foreign earned income exclusion (thus, $20,800 for 2025), subject to a limitation equal to 30 percent of the foreign earned income exclusion (thus, $39,000 for 2025). However, for certain foreign locations with high housing costs the 30-percent limitation can be adjusted by the U.S. Department of the Treasury.
Notice 2025-16
The Notice includes a table that identifies locations within foreign countries with high housing costs relative to the housing costs in the United States. The table sets out adjusted limitation amounts for the excludible housing expenses for individuals who qualify to claim the section 911 exclusions for 2025. Thus, a qualified individual incurring housing expenses in one or more of the high-cost locations identified in the table may use the adjusted limitation provided (in lieu of the statutory amount of $39,000) in determining the excludible housing cost amount. A qualified individual who incurs housing expenses in a locality other than one of those listed in the table is subject to the statutory housing expense limitation of $39,000 for 2025.
Notable changes
Of the 146 locations listed in the 2025 Notice, only 17 show an increase in the limitation amount compared to 2024, 79 show no change, and 50 show a decrease. This contrasts with the 2024 Notice, which showed 51 locations with an increase, 78 with no change, and only 6 with a decrease.
The location with the highest limitation remains Hong Kong, where the limitation is unchanged for the third year running at $114,300, followed by Moscow, where the limitation is also unchanged for the third year running at $108,000.
The location with the largest increase is the small town of Loudwater in the United Kingdom, where the limitation amount increases by $16,350 to $54,300. The amount for Luxembourg also increased significantly by $13,750 to $51,700.
Locations with significant decreases include Sydney (down by $4,700 to $62,300), Toronto (down by $4,500 to $57,400), Milan (down by $3,000 to $65,300), Tokyo (down by $5,400 to $67,700), Seoul (down by $4,700 to $44,500), and Geneva (down by $4,800 to $102,600).
Among other locations where it is common for U.S. assignees to claim the section 911 exclusions, the amounts for Kuwait City, Kuala Lumpur, Doha, Abu Dhabi and Dubai all remain unchanged, whereas the amount for Singapore is decreased by $1,200 to $82,900.
KPMG INSIGHTS
As stated above, where the 2025 adjusted housing limitation amounts for 2025 are higher than those provided in 2024, taxpayers may elect to use the higher 2025 amounts on their 2024 federal income tax returns. However, because of the relatively small number of locations where the limitation was increased, it will be less common for taxpayer to elect this treatment for 2025.
For more information on the foreign earned income exclusion and the housing amount exclusion, see chapter 1 of U.S. Taxation of Americans Abroad, a publication of KPMG LLP (U.S.).
FOOTNOTES:
1 See Notice 2025-16.
2 For prior coverage on the list of foreign locations for 2024, see GMS Flash Alert 2024-073 (March 29, 2024).
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Disclaimer
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