A U.S. citizen works in France for the entire Year 1. They earn $110,000 in salary. The maximum Foreign Earned Income Exclusion (FEIE) for Year 1 is $126,500. The taxpayer also has $5,000 of U.S. interest income. If the taxpayer elects the FEIE, what is their Adjusted Gross Income (AGI)?

Answer options:

$115,000

$5,000

$16,500

How to approach this question

Exclude foreign earned income up to the limit stated. Do not exclude U.S. source passive income.

Full Answer

C.$5,000✓ Correct

IRC §911. The salary of $110,000 is fully excluded because it is under the $126,500 limit. The U.S. interest income is not foreign earned income and remains taxable. AGI = $5,000.

Common mistakes

Excluding all income; applying the exclusion to unearned income.

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