How it works
Form 2555 claims the foreign earned income exclusion and the foreign housing exclusion or deduction. You must have a tax home abroad and meet either the bona fide residence test (a full tax year of residence in a foreign country) or the physical presence test (330 full days abroad in a 12-month period). The exclusion applies only to earned income and must be claimed on a filed return; once revoked it cannot be re-elected for five years without IRS consent.
Why it matters
Many expats owe little or no U.S. tax because of the exclusion, but only if they file. It does not cover investment or crypto gains, which need the foreign tax credit instead.
Related: foreign earned income exclusion, physical presence test. Read more: Form 2555 explained.
