Use IRS High-Cost Housing Caps Abroad

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Using the default $39,870 housing cap on a 2026 Form 2555 when you actually lived in Geneva can leave $77,030 of qualifying rent, utilities, and occupancy costs outside the IRS city table. As of April 2026, IRS Notice 2026-25 sets Geneva’s full-year housing-expense limitation at $116,900. The same notice still uses $39,870 for every city that is not listed. That gap is the entire point of this post: the high-cost table is a different search problem from “how the foreign housing exclusion works.”

This guide is for operators already earning above the Foreign Earned Income Exclusion who rent in an expensive city and need the correct line 29b cap. Beginners should start with the Form 2555 housing exclusion walkthrough. Families sharing one foreign household, and retirees with a last year of earned income, still use the same city table once they qualify under section 911. It sits in the Expat Tax & Finance cluster next to FEIE mechanics, not next to lifestyle cost-of-living lists.

What is the IRS high-cost city housing cap?

It is not a second FEIE. It is a ceiling on how much of your actual foreign housing spend can enter the housing-cost formula on Form 2555. As of tax year 2026, the IRS ties three numbers to the $132,900 maximum foreign earned income exclusion: a 16% base housing amount of $21,264, a general 30% expense cap of $39,870, and a city-by-city override table in Notice 2026-25.

The IRS explains the same structure on its foreign housing exclusion or deduction page: expenses minus the base, limited by location, and never more than your foreign earned income for the year. If your city is on the table, line 29b uses that city’s dollar figure (or its daily rate times qualifying days). If it is not, you are stuck with $39,870 for a full 2026 qualifying year.

The three numbers that actually matter

• Base housing amount. 16% of that year’s FEIE maximum. For a full 2026 qualifying year that is $21,264. You do not exclude the first $21,264 of rent. You subtract it.
• Limitation on housing expenses. Generally 30% of FEIE, or $39,870 for full-year 2026. Notice 2026-25 replaces that 30% figure for listed locations only.
• Housing cost amount. Qualifying expenses, capped at the limitation, minus the base. That result is what you exclude (employees) or deduct (self-employed), subject to earned-income limits.

Which cities beat the $39,870 default in 2026?

Notice 2026-25 lists locations with a full-year limitation and a daily rate. Daily rates matter when you qualify for only part of the calendar year: multiply the daily figure by the number of qualifying days that fall in 2026. Below are operator-relevant rows copied from the official table, not from a blog roundup. Amounts are U.S. dollars for a full qualifying year.

Location (as listed by IRS)	2026 full-year cap	2026 daily cap	Cap minus $21,264 base
Geneva, Switzerland	$116,900	$320.27	$95,636
Hong Kong, China	$114,300	$313.15	$93,036
Moscow, Russia	$108,000	$295.89	$86,736
Osaka-Kobe, Japan	$90,664	$248.39	$69,400
Bermuda	$90,000	$246.58	$68,736
Singapore	$86,700	$237.53	$65,436
Bern, Switzerland	$82,200	$224.66	$60,936
Luanda, Angola	$84,000	$230.14	$62,736
Vancouver, Canada	$73,400	$201.10	$52,136
Paris cluster (Garches, Paris, Sèvres, Suresnes, Versailles)	$73,600	$201.64	$52,336
Milan, Italy	$73,200	$200.55	$51,936
London, United Kingdom	$68,600	$187.95	$47,336
Tokyo City, Japan	$67,300	$184.38	$46,036
Zurich, Switzerland	$67,218	$184.16	$45,954
Sydney, Australia	$65,600	$179.73	$44,336
Bogotá, Colombia	$58,700	$160.82	$37,436
Dubai, UAE	$57,174	$156.64	$35,910
Madrid, Spain	$59,700	$163.56	$38,436
Default (city not listed)	$39,870	$109.23	$18,606

Data note: caps are from IRS Notice 2026-25, checked August 2026. The last column is the maximum housing cost amount if you spent at least the cap and qualified all year. Actual exclusion cannot exceed remaining foreign earned income after other limits.

Lisbon is listed as Alverca and Lisbon at $44,800. Mexico City is $47,900. Bangkok is $59,000. Barcelona is only $40,600, barely above the default. If you live in “Spain” but not Madrid or Barcelona, you do not get Madrid’s $59,700 figure. The IRS names locations, not countries.

Can I use 2026 city caps on a 2025 return?

Yes, but only where the 2026 limitation is higher than the 2025 limitation for that same location. Section 4 of Notice 2026-25 says a qualified individual who incurred housing expenses in such a location during 2025 may apply the 2026 table amounts instead of Notice 2025-16 and instead of the 2025 Form 2555 instructions table. The 2026 notice is effective for years beginning on or after January 1, 2026, with that explicit 2025 option.

The election replaces the limitation on housing expenses, not the 2025 FEIE maximum, not the 2025 16% base, and not the 2025 default 30% cap for unlisted cities. For 2025, the IRS still publishes a $130,000 FEIE maximum, a $20,800 base (16% of $130,000), and a $39,000 general housing-expense limitation. Zurich is the clean example: Notice 2025-16 listed Zurich at $39,219. Notice 2026-25 lists Zurich at $67,218. If your 2025 Zurich rent was high enough, the election adds $27,999 of room under the cap before you subtract the $20,800 base.

If you already filed 2025 using the lower table, the Form 2555 instructions discuss amended returns when you later qualify or when you need to change an exclusion computation. Do not assume software picked the higher 2026 city figure automatically. Check line 29b against the notice PDF, not against last year’s bookmark.

Who should reopen 2025 before chasing 2026

Reopen 2025 if you lived in a listed city whose 2026 cap rose, your qualifying expenses exceeded the old cap, and you still have unused foreign earned income after the housing amount. Skip the amendment theater if you were under the old cap anyway, or if foreign tax credits already wipe U.S. income tax and you are not trying to preserve credits. Compare that tradeoff in the FEIE versus foreign tax credit framework before you burn a CPA hour on a $400 housing tweak.

How do you calculate the exclusion with a city cap?

Work the Form 2555 housing parts in order. The IRS figuring the foreign earned income exclusion page is explicit: if you claim a housing exclusion, figure it first, because the FEIE is limited to foreign earned income minus the housing exclusion. You cannot cherry-pick a smaller housing exclusion to game brackets. Choosing the housing exclusion means taking the full amount you are entitled to.

1. Confirm you have a foreign tax home and pass either the bona fide residence test or the 330-day physical presence test for the qualifying period. No city table saves a taxpayer whose tax home is still the United States.
2. List qualifying housing expenses actually paid or incurred for you (and spouse or dependents who lived with you) during the qualifying portion of the year: rent, utilities other than telephone, occupancy taxes, and similar items the instructions allow. Exclude property purchase price, purchased furniture, capital improvements, meals, and lodging that was excluded from income because the employer provided it tax-free.
3. Identify the IRS location name. If you moved mid-year, the Form 2555 instructions require a worksheet that prorates limitations across locations rather than picking the highest city for the whole year.
4. Enter the lesser of actual qualifying expenses or the location limitation (full-year amount or daily rate × qualifying days) on the housing limitation line.
5. Subtract the base housing amount (16% of that year’s FEIE maximum, prorated for qualifying days).
6. Apply the earned-income ceiling: housing amounts cannot exceed foreign earned income for the year. Then compute FEIE on what remains, up to $132,900 for a full 2026 qualifying year ($130,000 for 2025).
7. Employees take the housing exclusion in Part VI. Self-employed taxpayers take the housing deduction in Part IX as an adjustment. You would have both only if you were an employee and self-employed in the same year, and even then each piece attaches to its own earnings source.

Married couples in the same foreign household generally share one limitation, not two city caps stacked. Separate foreign households can produce a second-household computation when the instructions’ conditions are met, usually for a non-working spouse and children who could not live with you because of living conditions. Do not invent a second cap because you keep an Airbnb in another listed city.

Does a freelancer get the same city cap as an employee?

The city limitation is the same number. The tax mechanics are not. The IRS housing page states that the exclusion applies only to amounts considered paid for with employer-provided amounts, and the deduction applies only to amounts paid for with self-employment earnings. The housing exclusion or deduction reduces income tax. Neither one reduces self-employment tax.

Self-employed operators also face a tighter remaining-income limit: the housing deduction cannot exceed foreign earned income minus the FEIE and any housing exclusion. Excess housing deduction can carry forward one year on the Form 2555 Part IX worksheet. Employees do not get that carryover. If you invoice U.S. clients from a high-cost city through a U.S. LLC, model Schedule C net, the 15.3% SE tax on net earnings of $400 or more, and the housing deduction together. Do not price your retainer as if Geneva’s $95,636 theoretical housing amount is a cash refund.

High earners paying CHF or HKD rent from USD balances often keep a U.S. brokerage such as Charles Schwab for the cash sleeve and ATM access, then settle local rent from a local account. That cash-flow stack does not change the IRS location test. The city on the lease and on line 29a is what Notice 2026-25 cares about.

What breaks the high-cost housing benefit?

The expensive mistakes are almost never “I used Geneva instead of Zurich.” They are eligibility and stacking mistakes.

• No foreign tax home. A U.S. abode you still treat as home, or an assignment you expect to end inside a short window, can fail the tax-home test even if every night was in Singapore.
• Unlisted suburb with a listed city name in the listing photos. Surrey, United Kingdom, is $48,402. London is $68,600. “All cities other than” lists in the U.K. footnote send many towns back to the general $39,870 limitation. Read the footnote in the notice, not a realtor’s commuter map.
• Buying instead of renting. Purchase price and improvements are out. Occupancy costs of a home you own can still include some qualifying items, but you do not get a $116,900 depreciation-style exclusion because Geneva is expensive.
• Employer camp or excluded lodging. If the lodging was not in gross income, you cannot run it through housing expenses.
• Foreign tax credit on the same excluded dollars. Taking a credit or deduction for taxes on income you can exclude can be treated as revoking the housing exclusion choice. That is why high-tax-country operators still need the FEIE-versus-credit comparison rather than stacking every benefit blindly.
• Lavish-or-extravagant facts. The statute still lets the IRS challenge expenses that are unreasonable in context, even if they sit under a $116,900 cap.

U.S. citizens remain taxable on worldwide income. The city table does not create a territorial system. If you also hold reportable foreign accounts used to pay that rent, FBAR (FinCEN Form 114) and Form 8938 thresholds are separate from Form 2555. For the core 911 tests, housing cap, and FEIE-versus-credit choice, run the numbers on a structured checklist before you file.

Conclusion

Notice 2026-25 is a location table, not a new exclusion. As of 2026 the default housing-expense limitation is $39,870 and the base is $21,264; Geneva, Hong Kong, Singapore, and a long list of named cities replace only the ceiling. Zurich’s jump from $39,219 to $67,218 is the reason some 2025 returns should use the 2026 figure. Get the city name, the qualifying days, and the employee-versus-self-employed box right, then let FEIE fill what housing does not. For the underlying 330-day and bona fide tests, use the FEIE exclusion guide rather than stretching this table into a residency article.

Data notes / Sources checked

• IRS Notice 2026-25 — 2026 adjusted housing-expense limitations by location; option to apply higher 2026 amounts to 2025; supersedes Notice 2025-16.
• IRS Notice 2025-16 — 2025 city table, including Zurich $39,219 and Geneva $102,600.
• IRS: Foreign housing exclusion or deduction — base amount, employer vs self-employment, full-exclusion rule, no SE-tax reduction.
• IRS: Figuring the FEIE — 2026 FEIE $132,900; 2026 general housing limitation $39,870; housing exclusion figured first.
• About Form 2555 and Instructions for Form 2555 — Parts VI, VIII, and IX; multi-location worksheet; one-year housing-deduction carryover.
• Publication 54 — Tax Guide for U.S. Citizens and Resident Aliens Abroad, chapter on housing.
• FinCEN: Report of Foreign Bank and Financial Accounts (FBAR) — account reporting is separate from the section 911 housing limitation.