The Bona Fide Residence Test

In order to claim the foreign earned income exclusion, or FEIE, a US expat must have a tax home that is located outside of the US and either meet the bona fide residence or physical presence test.

This article explains the bona fide residence test, how it works, and who can meet it.

What is the bona fide residence test?

The bona fide residence test is one of the tests that a US expat must meet in order to be eligible for the FEIE.

To meet the bona fide residence test, you must have established your “residency” in a foreign country. Typically, you begin your bona fide residence period the day you moved abroad. Your bona fide residence ends the day you move back to the US.

You must have been a bona fide resident of a foreign country for an entire tax year, so if you established bona fide residency in or before 2021, and are still a resident of a foreign country in 2023, then you are considered a bona fide resident because you were outside of the US for a full calendar year (2022). You remain a bona fide resident until establishing residency back in the US For example, if you moved abroad during 2022, then you will not qualify as a bona fide resident unless you continue to live abroad through the end of 2023.

Do you have some examples of how the bona fide residence test works?

Example #1

Let’s say you moved abroad on August 1st 2021, and you expect to continue to live abroad indefinitely. Because you lived abroad for a full calendar year (2022), you meet the bona fide residence test as of 1 January 2023, but your bona fide residence is retroactive to the 2021 tax year and will remain effective until you move back to the US.

Example #2

Let’s say you moved abroad on August 1st 2022, and you expect to continue to live abroad indefinitely. However, come time to file your 2022 tax return (June 15th 2023), you still have not lived abroad for a full calendar year. At the time of filing your 2022 tax return, you are not considered a bona fide resident. You will only become a bona fide resident as of 1 January 2024, however this will be retroactive to the 2022 tax year.

In this situation, you should either qualify for the physical presence test, or file an extension to file your tax return until you meet the bona fide residence test.

Example #3

Let’s say you moved abroad on January 15th 2022, for a temporary foreign assignment. You moved back to the US on January 16th 2023. Since you did not live abroad for a full calendar year, you would not meet the bona fide residence test. You should see if you can qualify for the physical presence test.

The FEIE can be used to exclude “foreign earned income” from being subject to US tax. What this means for most expats is that they can use the FEIE to exclude foreign wage income or foreign self-employment income, from being subject to US tax.

Will maintaining a US address while living abroad affect my eligibility?

No – most US expats still have a US address and this does not affect their eligibility.

What about having a US driver’s license, does this affect my eligibility?

Nope.

I live abroad but spend my summer’s vacationing in the US, does this affect my eligibility?

No – it does not. As long as you have close ties to the foreign country you live in, you can spend a considerable amount of time in the US while still being a bona fide resident of a foreign country (6 months is considered acceptable).

I still have a US bank account, does this affect my eligibility?

Nope.

What does affect my bona fide residence?

If you made a statement to a foreign government that you are not a resident of that country for the purposes of not paying income tax to that country, then you would not meet the bona fide residence test.

If you are temporarily travelling to a foreign country, but still live in the US (you consider the US your home or abode), then you would also not be considered a bona fide resident of a foreign country.

This sounds complicated, how can I get help?

We built Expatfile to take the guess work out of filing your expat taxes. Using our software, you just answer simple questions about your time abroad and travel, and Expatfile automatically does all the work to determine your eligibility.

Last update: Jan 8, 2024