An overlooked tax benefit for US expats

The Dominican Republic has increasingly become a popular destination for US expats, retirees, and digital nomads to reside and live full-time. The year-round tropical climate, stunning beaches, vibrant and laid-back culture, and favorable cost of living are among the top reasons Americans decide to move to the DR.

However, one often overlooked benefit of living abroad as a US expat or retiree is the Foreign Earned Income Exclusion (or FEIE). This unique tax break can help US expats to mitigate their tax burden.

As of 2024, the FEIE allows expats to earn up to US$126,000 free from US taxation. To qualify for this exclusion, expats must meet either the “Bonafide Residence” or the “Physical Presence” test.

By being an official resident of a foreign country, like the Dominican Republic, you could meet the “Bonafide Residence” test. To qualify under the “Physical Presence” test, you must live outside the US for 330 days out of 365 days over any 12-month period.

Only “foreign sourced” earned income—income for performance of services outside of the US—is eligible for the FEIE. Unearned or passive income (rental income, dividends, interest) is not eligible.

For example, if you’re a US citizen living in the Dominican Republic and provide consulting services to clients, your income of up to US$126,000 could be eligible for the FEIE.

If you qualify, you will file Form 2555 to claim the FEIE.

It’s crucial to consult with a CPA or tax expert who specializes in taxes for expats. Their expertise will guide you through the process, ensuring you maximize your potential tax benefits as a US citizen living abroad.

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Maria Abreu is the CEO and Managing Attorney of Abreu & Associates, a law firm practicing exclusively in Dominican Republic Immigration and Nationality law. She is also the founder of Retire and Invest DR. This organization hosts conference events for foreigners interested in living, retiring, and investing in the DR. You can contact Maria at: mabreu@abreuimmigration.com.