As a US expat living abroad, the bona fide residence test can help you claim FEIE on your foreign earned income. To qualify as a bona fide resident, you must actively earn income in a foreign country for a full tax year, proving genuine intent to remain for an extended period. Unlike short assignments your company sends you on, meeting this test allows brief trips back home without losing your bona fide resident status.
What Is the Bona Fide Residence Test?
The bona fide residence test is a criterion used by the IRS to determine whether a U.S. citizen or qualifying resident alien genuinely resides in a foreign country. To qualify as a bona fide resident, you must establish and maintain a true residence in a foreign country for an uninterrupted period that includes an entire tax year (January 1 through December 31).
It’s critical to understand that simply living abroad for a prolonged period does not automatically make you a bona fide resident. The IRS carefully examines your intentions and lifestyle abroad to confirm your residency is indeed bona fide.
How to Claim the Bona Fide Residence Test on Your Tax Return?
To officially claim the foreign earned income exclusion using the bona fide residence test, you’ll need to complete Form 2555, specifically Part II. This section requires you to provide detailed information about your foreign residence, the period starting and ending during which you were a bona fide resident of a foreign country, and your qualifying tax years. You must also confirm that your residency included an entire tax year, and disclose any special agreements with foreign authorities or treaties that may affect your claim. Accurately completing this form and attaching it to your expat tax return is essential to avoid delays or denial of your tax benefit. Be sure to retain documentation such as income tax returns filed abroad, lease agreements, and other proof of intent to remain overseas for an extended period.
Form 2555, Section II – Where U.S. expats claim the Bona Fide Residence Test to qualify for the Foreign Earned Income Exclusion on their U.S. tax return
Why Intent Matters for Bona Fide Residency
The primary reason the bona fide residence test is harder to pass is that the IRS closely examines your intent behind living abroad. For instance, if you retain a U.S. home, regularly return for visits, or openly express your plan to move back after a certain period, the IRS will likely determine your residence is not genuinely bona fide.
Even if you spend a significant amount of time abroad—for instance, a year and a half—but demonstrate plans to return home, the IRS can reject your claim as lacking true bona fide residency. Conversely, if you face unexpected situations, like civil unrest, causing an unreasonable delay in establishing residency, the IRS may also deny your claim.
Examples: How to Meet the Bona Fide Residence Test
Scenario 1: Qualifies as a Bona Fide Resident
Maria is a US citizen who moved permanently to Spain for employment. She signed a multi-year lease, filed Spanish income tax returns, established her tax home in Spain, and plans to stay indefinitely. After an uninterrupted period covering an entire tax year (Jan 1 – Dec 31), Maria successfully established bona fide residence. As a bona fide resident, Maria can even spend two months visiting family in the U.S. without jeopardizing her bona fide resident status.
Scenario 2: Does NOT Qualify (Temporary Assignment)
James, a US expat, is assigned by his U.S.-based employer to France for a 15-month project. He maintains his U.S. home, family remains stateside, and his assignment has a clear end date. Even though James actively pays taxes and lives in a foreign country for more than a year, the IRS would deny his claim because his residence lacks the genuine intent of permanence—failing to qualify as a bona fide resident.
Scenario 3: Qualifies Despite Brief Trips to the U.S.
Alex, a US citizen who moved permanently to Japan, clearly established long-term foreign residence. He works, actively files Japanese income tax returns, and plans to remain abroad indefinitely. Although Alex frequently makes brief trips back to the U.S. totaling about two months per calendar year, he maintains his tax home and strong community ties in Japan. Alex would easily pass the bona fide residence test, as temporary U.S. visits are permitted under the bona fide residence test.
Scenario 4: Does NOT Qualify Due to Ambiguous Intent
Sarah relocated to Mexico, rents a home there, and pays local taxes. However, Sarah openly states she plans to return to the U.S. after two years. Her stay, though covering an entire tax year, is clearly defined and temporary. Due to this lack of intent to remain for an indefinite or extended period, Sarah’s claim as a bona fide resident would likely be rejected by the IRS.
Scenario 5: Qualifies with Indefinite Intent and Integration
David, a US citizen, moves to Germany intending to remain there for the foreseeable future. He secures long-term employment, pays local German income tax, establishes permanent foreign residence, and fully integrates into local society. David has clearly demonstrated his intent and maintained an uninterrupted period of residency including at least one full tax year. As a result, David clearly qualifies as a bona fide resident, benefiting from the bona fide residence test even if he chooses to spend significant vacation time (up to two months per year) in the U.S.
Important Note on Flexibility:
A significant advantage of passing the bona fide residence test is that you have greater flexibility regarding visits to the United States. Unlike the strict requirement of the physical presence test (where spending more than 35 days per year in the U.S. disqualifies you), bona fide residents can comfortably spend extended periods (even two months or more per year) visiting the U.S. without losing their eligibility for tax benefits.
Benefits of Meeting the Bona Fide Residence Test
If you successfully meet the bona fide residence test, you’ll gain several key benefits:
- Access to the foreign earned income exclusion, reducing your taxable income.
- Potential to exclude certain housing costs from your U.S. taxes.
- Reduced risk of facing IRS audits due to clearly documented residency.
Moreover, properly claiming bona fide residence can help you avoid double taxation, particularly if your foreign country has an income tax treaty with the U.S.
Important Considerations and Common Pitfalls
- Unearned income (like investment returns or pension payouts) typically cannot be excluded using this test.
- Short-term or temporary stays generally fail to satisfy the bona fide residency test requirements.
- Green card holders must be cautious, as claiming bona fide residency could affect their immigration status.
- Special circumstances such as evacuations due to civil unrest or political instability must be documented clearly, as they may affect your claim.
Should You Use the Bona Fide Residence Test?
Ultimately, deciding whether to pursue bona fide resident status comes down to your specific situation. If your intentions to live abroad are indefinite, your ties to the new country strong, and your U.S. connections minimal, this test could be ideal for your tax planning.
However, if your intentions are unclear or your stay abroad temporary, you’ll likely find it easier and safer to qualify under the more straightforward physical presence test.
Still Unsure? Get Expert Help with Your Expat Taxes
Navigating the IRS rules around bona fide residency and the foreign earned income exclusion can be complicated. If you’re uncertain whether you meet the bona fide residence test or need help with your expat tax return, our experts at 1040 Abroad are ready to guide you through every step.
We offer free consultations to help you confidently manage your tax obligations abroad and maximize your savings. Get in touch today to discuss your unique situation with a qualified expat tax expert.
