Living Abroad as an American? Don’t Miss These Tax Breaks in 2025

The tax deadline for U.S expats is June 16, but there are some tax credits and deductions you can still claim if you're an American living abroad.

Living overseas won’t let you off the hook from certain tax obligations, as you’re still required to file a tax return with the IRS. For some taxpayers, that means facing the burden of double taxation or having to file taxes both in the U.S. and their country of residence.

One of President Donald Trump’s campaign pledges included ending what some consider unfair double taxation for American expatriates. But the Trump administration has yet to keep that promise, so Americans living overseas must file their 2024 tax returns (filed generally in early 2025) by the extended June 16 deadline.

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Each year, many Americans choose to retire abroad to save on taxes. Luckily, there are ways you can reduce your U.S. tax burden further through credits and deductions.

There’s more: One of the tax credits on this list may be enhanced under the GOP’s version of Trump’s ‘One Big Beautiful Bill.’

Here are some key tax breaks that you don’t want to miss out on in 2025.

1. Foreign Earned Income Exclusion

One of the most popular tax breaks for U.S. expats is the foreign earned income exclusion (FEIE), which allows you to exclude some or all of your foreign earned income from your federal income taxes.

For the 2025 tax year (taxes due in 2026), eligible taxpayers can exclude up to $130,000 of their foreign earned income (that’s up from $126,500 for the 2024 tax year).

The exclusion is calculated using IRS Form 2555 and helps prevent double taxation on income earned abroad.

The FEIE is available to U.S. expats who:

• Have earned income from work in a foreign country
• Are self-employed and work outside of the U.S. or Puerto Rico
• Pass either the Bona Fide Residence Test or the Physical Presence Test

Taxpayers must also be physically present in a foreign country for at least 330 days during the tax year to claim the FEIE.

2. Foreign Housing Exclusion or Deduction

If you live abroad as an American, you can also get a potential federal tax break for your housing expenses with the foreign housing exclusion or a deduction. This benefit can be used alongside the foreign earned income exclusion (FEIE).

The foreign housing exclusion or deduction must be for your tax home, meaning that the property is located in your main country of employment, post of duty, or business.

What’s the foreign housing exclusion? This tax break allows you to exclude qualified housing expenses from your foreign income. Generally, this is up to 30% of the maximum foreign income exclusion.

• For tax year 2025 (taxes filed in 2026), that amount is $39,000.
• The limit for 2024 (taxes typically filed earlier this year) was $37,950.
• This limit can vary depending on the location of your foreign tax home and the number of qualifying days in the tax year.

The foreign housing deduction works differently. The main difference is that only self-employed expats can claim this tax break.

3. Foreign Tax Credit

Taxpayers who paid or accrued certain foreign taxes can reduce their double tax burden by considering the foreign tax credit (FTC). To claim this credit, a tax must be imposed on you by a foreign country or a U.S. possession. For example, this can be a tax on an estate or investment.

Unlike the FEIE, the FTC provides a dollar-for-dollar credit for foreign taxes paid and applies to both earned and passive income. This tax break also allows taxpayers to carry over unused credits in future years.

You can claim this credit by filing the IRS Form 1116. Corporations must file IRS Form 1118 to claim the foreign tax credit.

On the flip side, if you want to itemize your deductions on foreign taxes, file a Schedule A (Form 1040). A few examples of itemized deductions include medical expenses, gifts to charities, and job expenses.

4. The Child Tax Credit

The federal child tax credit (CTC) is a tax break designed for families with qualifying children, and it's available to U.S. citizens who reside in foreign countries.

Here’s the catch: You won’t be able to claim the CTC if you use the foreign earned income exclusion, but you can if you claim an FTC.

As it stands, eligible households can claim up to $2,000 per child under the age of 17. If the credit surpasses your tax liability, you can receive some or all of the difference as a refundable credit.

• The refundable portion of the CTC, known as the Additional Child Tax Credit, is worth 15% of a family's earnings above $2,500 — up to a maximum of $1,700 per child for tax year 2024 (taxes typically filed in 2025).
• This credit phases down once a household income surpasses $200,000 for single parents or $400,000 for married couples.

Potential changes for the CTC

This version of the federal child tax credit under the Tax Cuts and Jobs Act of 2017 (TCJA) is slated to expire this year. If the Republican-controlled Congress doesn’t pass a legislative tax package, this means that the CTC will revert to $1,000 per child under age 17 after the end of the year.

As reported by Kiplinger, Republican lawmakers have proposed an expanded CTC in their version of Trump’s One Big Beautiful Bill.

The measure, which is currently undergoing revisions at the U.S. Senate, proposes the following changes to the CTC:

• Increasing the full child tax credit amount to $2,500 per child through 2028.
• Setting the full credit amount to $2,000 for subsequent tax years.
• Applicants must have a Social Security number to qualify for the credit.

For more information on how the would-be expansion of the child tax credit would work, see: Here’s How the Child Tax Credit Could Increase Under Trump.

Need more time to file your taxes?

While most taxpayers file their taxes on April 15, the IRS automatically grants U.S. expats a two-month extension. This year, that deadline is June 16.

If you need more time to get your tax documents in order, you can request an additional extension through Oct. 15, 2025. However, you’ll have to act fast to avoid penalties.

• To request an extension, you must file a Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return) before June 16.
• Keep in mind, an extension to file does not exempt you from interest on unpaid taxes.
• Interest continues to accrue as of April 15, per IRS regulations.

Living abroad can have its set of advantages and tax perks, as some countries can allow you to stretch your retirement. For instance, many Americans flock to Panama for its retirement benefits and no tax on inheritance.

Still, you’ll have to meet U.S. tax obligations for the time being. If you’re unsure of how to handle your taxes while living overseas, or want more tips on which tax breaks you may be eligible for, consult an international legal or tax professional.

For more tax tips for U.S. expats:

• Retirement Abroad? Three Countries Without Inheritance Tax
• Three Reasons to Retire in Panama in 2025
• IRS Tax Deadlines for June 16, 2025