Bona fide residency test


You meet the bona fide residence test if you are a resident of a foreign country for an uninterrupted period which includes full calendar year. However, not every resident is qualified for a bona fide residence test. It is determined according to each individual case, taking into account factors such as intention of the stay, the purpose of the trip, and the nature and length of the stay abroad.

You can use the bona fide residence test to qualify for the exclusions and the deduction only if you are a U.S. citizen, or a U.S. resident alien who is a citizen or national of a country with which the US has an income tax treaty in effect. The U.S. and the Netherlands have concluded such a treaty.

Example 1:

You are the Lisbon representative of a U.S. employer. You arrived with your family in Lisbon on November 1, 2013. Your assignment is indefinite, and you intend to live there with your family until your company sends you to a new post. You immediately established residence there. On April 1, 2014, you arrived in the United States to meet with your employer, leaving your family in Lisbon. You returned to Lisbon on May 1, and continue living there. On January 1, 2015, you completed an uninterrupted period of residence for a full tax year (2014), and you may qualify as a bona fide resident of a foreign country.

Example 2:

Assume that in Example 1, you transferred back to the United States on December 13, 2014. You would not qualify under the bona fide residence test. Although, your bona fide residence in the foreign country lasted more than a year, it did not include a full tax year. You may, however, qualify for the foreign earned income exclusion or the housing exclusion or deduction under the physical presence test.

More information can be found in the IRS Publication 54.

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