Bona Fide or Bust: Qualifying for the Foreign Earned Income Exclusion

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Bona Fide or Bust: Qualifying for the Foreign Earned Income Exclusion

If you recall from one of our earlier blog posts, the FEIE (foreign earned income exclusion) allows U.S. taxpayers working abroad to exclude a certain amount of their foreign-earned income from U.S. taxation, which can help reduce their overall tax liability. It's a great tool that few taxpayers realize.

Also, if you remember, there are two tests American taxpayers can use to qualify for the FEIE. One is the physical presence test, which we wrote about in a previous blog post. The other is the "bona fide residence test," which is our focus today.

Qualifications:

In order to qualify for the FEIE under the bona fide residence test, taxpayers must:

• Be a U.S. citizen (or a U.S. resident alien from a country with a tax treaty),

  
  

• Establish a bona fide residence in a foreign country,

  
  

• And live in that foreign country for an uninterrupted period that includes a full calendar year (January 1 through December 31).

It sounds so simple right? Well, not really.

A bona fide residence is not just a temporary stay—it generally means you've made a genuine, long-term home in the applicable foreign country, even if you intend to return to the U.S. eventually. Factors such as your intention, purpose of stay, and the length and nature of your stay are considered.

International Reporting: FEIE

Key Elements of Bona Fide Residence:

• Intent to Stay

  • You plan to live there for an extended period—not just temporarily.

  • You treat it as your "home base," even if you plan to eventually return to the U.S.

    
    

• Uninterrupted Full Calendar Year

  • You must be a resident of the foreign country for an entire calendar year (Jan 1–Dec 31) without a break in residency. Of course, this doesn't mean you can't take trips out of that foreign country.

    
    

• Established Life Abroad

  • You’ve rented or bought a home.

  • You may have joined local clubs, enrolled children in school, opened a local bank account, etc.

  • You’re part of the local community, not just passing through.

    
    

• Type of Employment or Stay

  • Long-term employment contracts help show you’re settled.

  • Military and diplomatic exceptions exist but often require more scrutiny.

    
    

• Legal Residency or Visa Status

  • Holding a visa or residence permit helps prove you’re legally allowed to reside in the country.

Conclusion

This test is qualitative, focusing on your ties to the foreign country, unlike the physical presence test, which is based strictly on days spent abroad. The test is also a very "facts and circumstances" specific test where certain actions such as opening up a bank account, and engaging in the local foreign community, can increase your likelihood of being considered a bona fide resident.

If this all sounds overwhelming, that's because it is. Make sure you reach out to your premier tax resolution experts at Liberty Tax Defenders to guide you through the complicated maze that is international reporting.

Cheers!

The Liberty Team

©2025 Liberty Financial Solutions, LLC &  ©2025 Brad R. Horton.

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