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Will I Lose My Bona Fide Resident Status When I Move?

Will I Lose My Bona Fide Resident Status When I Move?
Ines Zemelman, EA
25 October 2015

If you have already been recognized as a bona fide resident of another country, you maintain qualification for the FEIE in the new country of residency.

One of the many ways that US Expats save money on their US expat tax returns is to claim the FEIE (Foreign Earned Income Exclusion).  In order to qualify for this huge exclusion, you must be able to pass either the Physical Presence Test or the Bona Fide Residence Test.  If you have already qualified as a bona fide resident in one country, what happens to your bona fide resident status if you move to another country?

You may still move around the world as long as you have no intention of moving back to the United States.

In order to meet the requirements of the Bona Fide Residence test, you must be living in a foreign country for a full year and have no intentions of moving back to the United States in the near future.  The country in which you reside doesn’t necessarily have to stay the same for you to meet the conditions of the Bona Fide Residence Test; you just have to have established a tax home in a foreign country.

It doesn’t take much to prove that you have created a tax abode in a foreign country.

When the IRS takes a look at your foreign residency, they look for a variety of indications that you have established a tax abode in a country outside of the United States.  This means that the location of your financial account(s) is in your host country, you have professional affiliations in your host country, you are a member of one or more groups or organizations, you maintain a household, etc.

Assume you are living in Finland.  If you take a trip to Italy for an extended period of time, you must maintain your tax abode in Finland.  If you are planning on moving to Italy for good, you must establish a tax home in that country.  If you are planning on going on a short trip to the United States or to another country, you don’t have to worry about creating a tax abode in another country as long as you plan on returning to your host country.

It’s important to realize that you must have every intention of returning to the place where your tax home is established once you are finished with your vacation.  The IRS looks at the facts.  If you are living overseas and you maintain your foreign home while you are temporarily residing in or visiting another country, this is suitable evidence to the IRS that your intention is to live in the country in which your tax abode is established.

The bona fide residence test may not be feasible for certain types of work; you may be able to meet the conditions of the Physical Presence Test.

The rules surrounding the Bona Fide Residence Test is the very reason that contractors find it difficult to qualify.  Contractors are generally on temporary work assignments overseas.  These assignments can last anywhere between a few months to a year or longer.  Typically speaking, the contractor leaves everything as it is in the United States; family remains behind, domestic bank accounts remain open, etc.  If you are a contractor and you are outside of the country on a temporary assignment for at least 330 days out of a period of 365 days, you will qualify for the Foreign Earned Income Exclusion by meeting the conditions of the Physical Presence Test

Ines Zemelman, EA
founder of Taxes for Expats