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I currently live in Italy but expect to move to the U.S. in September to start a new job; however, I would keep my apartment in Italy till the end of the year.

Is it possible to claim Bona Fide Residence for the period January-August? According to https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-bona-fide-residence-test,

"You meet the bona fide residence test if you are a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year."

It seems to me, however, that it must be possible to avoid double taxation for part of a tax year.

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You're at the wrong page to check for eligibility to claim the Foreign Earned Income Exclusion. The full eligibility test says that if you do not meet the Bona Fide Resident test, you can claim the exemption if you meet the test of physical presence in a foreign country.

The full physical presence test is described here, but the gist is that if you were not in the United States for 330 days or more in a period spanning twelve consecutive months (and you meet the other eligibility criteria for the Foreign Earned Income Exclusion), you are eligible to claim the Foreign Earned Income Exclusion. You can see in Part IV of Form 2555-EZ, where you claim the exclusion, that the total amount you're allowed to exclude is prorated based on the number of days in the tax year that you are claiming the exemption for--that is, if you meet the test of physical presence and are in Italy from January to September, the total amount you're eligible to exclude is roughly three-fourths what it would be if you were in Italy for the full year.

  • Just to confirm, suppose I arrived in Italy in September 2016 and left in September 2017. That means I spent over 330 days of a 12-month period in Italy, even though not all of it was in 2017. This means that I qualify for the Physical Presence Test in 2017, but the maximum FEIE is $102,100 * 3/4 = $76k (based on 3/4 of the year residence in Italy), correct? – Kurt Peek Aug 9 '17 at 11:22
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    And if you didn't get the FEIE, you would still get the foreign tax credit for income tax paid to the foreign country up to the related portion of your US tax. Although this form (1116) is more work to fill out, especially if you need to do multiple categories. – dave_thompson_085 Aug 9 '17 at 12:38
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    @KurtPeek Correct. (Although if you leave near the beginning of September it's more like 2/3rds of $102,100). You are also eligible on your return for tax year 2016 to exempt up to $101,300 * 1/4 (or 1/3rd, depending on when you arrived) of income earned abroad in that year, as the 12-month rolling period began in September of 2016. – Guest5 Aug 9 '17 at 18:38

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