Q&A: Can we deduct moving expenses and mortgage interest/taxes abroad in our US return?

Posted by Don W on August 20, 2010 under Expatriate Taxes, Relocation and Taxes

Q: My wife is a dual Australian / US Citizen.  We are now residents of (and homeowners in) Australia. In June 2009, we incurred approximately $10,000 in moving expenses from Tennessee to Australia.  Are any of our moving expenses to Australia deductible? Does US Tax Code allow us to deduct any of the mortgage interest or taxes paid for our primary residence in Australia?

Also, my wife and I have spent only 10 days in the USA since July 2008, so for TY 2010, 330 Rule is assured. Given the benefit of US Taxes 330 Rule, is it better to file as a US Citizen and offset Australian tax liabilities against that filing?

A: For Federal purposes you can deduct your moving expenses. You can also deduct foreign mortgage interest on Schedule A.

As for filing, there is only one option –  all US citizens are required to report their worldwide income to the IRS each year.  You can get a tax credit for foreign taxes paid, but your US tax return is still your primary tax return (in the eyes of the IRS).

Q&A: If I take a cruise departing from the States, how will it affect my Physical Presence Test?

Posted by Don W on August 2, 2010 under Expatriate Taxes

Q: I am a US expat living in Brazil.  I am trying to find some data on US expats taking cruises. I recall something about if a cruise departs from a US port, it will still be considered as time in the US and would count against the physical presence requirements. I have checked the IRS website as well as the State Dept Travel website, but I have been unsuccessful in finding the answer to this question.

A: If you are living in Brazil, then your tax home is Brazil.  That doesn’t change because you are on a cruise for a week or two. In this instance, you are still outside of the US and you have established a tax home already.

However, all bets are off if you are wondering if you can live on a cruise ship and also qualify for the Foreign Earned Income Exclusion.

The Physical Presence Test has two parts:

  • Tax Home
  • 330 days

You must meet both.  For more information on this test check out the Foreign Earned Income Exclusion section of the Expat Tax Basics page on our main site.