Melanie,a U.S.citizen living in Paris,France for the last three years,earns a salary of $125,000 in 2016.Melanie's housing costs are $24,000 per year,which is reasonable.How much can Melanie exclude from income?

Question

Quizplus · Accepted Answer

In order to determine how much Melanie can exclude from income, we need to use the Foreign Earned Income Exclusion (FEIE). Since Melanie has been living in Paris for the last three years, she meets the physical presence test, which requires her to be present in a foreign country for at least 330 full days in a 12-month period. Assuming Melanie meets this test, she can exclude up to $101,300 of her foreign earned income on her 2016 U.S. tax return. However, since her housing costs are considered reasonable, she can also qualify for the Foreign Housing Exclusion, which allows her to exclude additional amounts above the FEIE cap. In this case, since her housing costs are $24,000 (which is less than the maximum exclusion amount of $30,240), she can exclude an additional $8,792 from income. Therefore, the total amount that Melanie can exclude from income is $101,300 + $8,792 = $110,092. Option C is the closest choice to this amount.