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Manchester New Hampshire online Form 2555-EZ: What You Should Know
S. Expat Taxes for a review of this form and its implications. Form 2555-EZ — the foreign earned income exclusion You can't claim the foreign earned income exclusion if you're not a U.S. resident. You also can't claim it if any of your dependents live overseas. This form should not be confused with a related form called Form 2555, Foreign Tax Credit. I. The U.S. Resident Exclusion The U.S. resident exclusion applies to income from countries other than the United States. Generally, to qualify for the exclusion a foreign person must have: (1) a “domicile in the United States”; and (2) paid U.S. taxes in the two years leading up to the taxable year on that income. (See Publication 519, U.S. Tax Guide for Aliens.) II. Qualifying for the Foreign Earned Income Exclusion Excluded income is taxed at the same tax rate as U.S. income. Therefore, the foreign person's income must be greater than the U.S. person's adjusted basis in property. Because income from a foreign source may be excluded under different tax rules, it's not always possible to avoid income from a foreign source. In general, taxable income from a foreign source includes: Any income from a passive investment in a U.S. trade or business, as well as dividends or interest earned, interest paid, or rents paid; Any interest income earned by a foreign partnership from the sale of capital assets used in carrying on the partnership's trade or business, including rents and royalties from real property located outside the country; Capital gains and losses from sales of real property located outside the country are not excluded; Any other interest income earned by a foreign partnership from assets sold on account of its income derived on a non- U.S. trade or business; Any taxable U.S. interest, rental, or royalty income from a business or investment in the United States obtained from sources outside the country; and See paragraph (2) below for exceptions. If an exception to paragraph (1) above applies, the foreign partner must not have controlled, or substantially dominated, the active conduct of a U.S. trade or business during the two-year period ending on the last day of the taxable year for which the partner has excluded income from a foreign country.
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