To meet this test, you must be one of the following:

No specific rule determines if you are a bona fide resident of a foreign country because the determination involves your intention about the length and nature of your stay. Evidence of your intention may be your words and acts. If these conflict, your acts carry more weight than your words. Generally, if you go to a foreign country for a definite, temporary purpose and return to the United States after you accomplish it, you are not a bona fide resident of the foreign country. If accomplishing the purpose requires an extended, indefinite stay, and you make your home in the foreign country, you may be a bona fide resident. See Pub. 54 for more information and examples.

To meet this test, you must be a U.S. citizen or resident alien who is physically present in a foreign country, or countries, for at least 330 full days during any period of 12 months in a row. A full day means the 24-hour period that starts at midnight.

To figure the minimum of 330 full days, add all separate periods you were present in a foreign country during the 12-month period shown on line 16. The 330 full days can be interrupted by periods when you are traveling over international waters or are otherwise not in a foreign country. See Pub. 54 for more information and examples.

Enter in this part the total foreign earned income you earned and received (including income constructively received) during the tax year. If you are a cash basis taxpayer, report on Form 1040 all income you received during the tax year regardless of when you earned it.

Income is earned in the tax year you perform the services for which you receive the pay. But if you are a cash basis taxpayer and, because of your employer's payroll periods, you received your last salary payment for 2005 in 2006, that income may be treated as earned in 2006. If you cannot treat that salary payment as income earned in 2006, the rules explained under Income earned in prior year, discussed later, apply. See Pub. 54 for more details.

Foreign earned income for this purpose means wages, salaries, professional fees, and other compensation received for personal services you performed in a foreign country during the period for which you meet the tax home test and either the bona fide residence test or the physical presence test. It also includes noncash income (such as a home or car) and allowances or reimbursements.

Foreign earned income does not include amounts that are actually a distribution of corporate earnings or profits rather than a reasonable allowance as compensation for your personal services. It also does not include the following types of income.

Line 28.   Enter the total reasonable expenses paid or incurred during the tax year by you, or on your behalf, for your foreign housing and the housing of your spouse and dependents if they lived with you. You can also include the reasonable expenses of a second foreign household (defined later). Housing expenses are considered reasonable to the extent they are not lavish or extravagant under the circumstances.

  Housing expenses include rent, utilities (other than telephone charges), real and personal property insurance, nonrefundable fees paid to obtain a lease, rental of furniture and accessories, residential parking, and household repairs. You can also include the fair rental value of housing provided by, or on behalf of, your employer if you have not excluded it on line 25.

  Do not include deductible interest and taxes, any amount deductible by a tenant-stockholder in connection with cooperative housing, the cost of buying or improving a house, principal payments on a mortgage, or depreciation on the house. Also, do not include the cost of domestic labor, pay television, or the cost of buying furniture or accessories.

  Include expenses for housing only during periods for which:

Second foreign household.   If you maintained a separate foreign household for your spouse and dependents at a place other than your tax home because the living conditions at your tax home were dangerous, unhealthful, or otherwise adverse, you can include the expenses of the second household on line 28.

Married couples.   The following rules apply if both you and your spouse qualify for the tax benefits of Form 2555.

Line 29a.   Enter the city or other location (if applicable) and the country where you incurred foreign housing expenses during the tax year only if your location is listed in the table provided in the IRS guidance to be issued in early 2007; otherwise, leave this line blank.

Line 29b.   Your housing expenses may not exceed a certain limit. The limit on housing expenses varies depending upon the location in which you incur housing expenses (see Caution, above). In 2006, for most locations, this limit is $24,720 (30 percent of $82,400) if your qualifying period includes all of 2006 (or $67.73 per day if the number of days in your qualifying period that fall within your 2006 tax year is less than 365).

  If the location in which you incurred housing expenses is listed in the table provided in the IRS guidance to be issued in early 2007, or the number of days in your qualifying period that fall within the 2006 tax year is less than 365, use the Limit on Housing Expenses Worksheet on this page to figure the amount to enter on line 29b. If the location in which you incurred housing expenses is not listed in the table provided in the IRS guidance to be issued in early 2007, and the number of days in your qualifying period is 365, enter $24,720 on line 29b.

More than one foreign location.   If you moved during the 2006 tax year and incurred housing expenses in more than one foreign location as a result, complete the Limit on Housing Expenses Worksheet on page 3 for each location in which you incurred housing expenses, entering the number of qualifying days during which you lived in the applicable location on line 1. Add the results shown on line 4 of each worksheet, and enter the total on line 29b.

  

If you moved during the 2006 tax year and are completing more than one Limit on Housing Expenses Worksheet , the total number of days entered on line 1 of your worksheets may not exceed the total number of days in your qualifying period that fall within the 2006 tax year (that is, the number of days entered on Form 2555, line 31).

Line 31.   Enter the number of days in your qualifying period that fall within your 2006 tax year. Your qualifying period is the period during which you meet the tax home test and either the bona fide residence or the physical presence test.

Example.   You establish a tax home and bona fide residence in a foreign country on August 14, 2006. You maintain the tax home and residence until January 31, 2008. You are a calendar year taxpayer. The number of days in your qualifying period that fall within your 2006 tax year is 140 (August 14 through December 31, 2006).

Nontaxable U.S. Government allowances.   If you or your spouse received a nontaxable housing allowance as a military or civilian employee of the U.S. Government, see Pub. 54 for information on how that allowance may affect your housing exclusion or deduction.

Line 34.   Enter any amount your employer paid or incurred on your behalf that is foreign earned income included in your gross income for the tax year (without regard to section 911).

  Examples of employer-provided amounts are:

Self-employed individuals.   If all of your foreign earned income (Part IV) is self-employment income, skip lines 34 and 35 and enter -0- on line 36. If you qualify, be sure to complete Part IX.

Married couples.   If both you and your spouse qualify for, and choose to claim, the foreign earned income exclusion, figure the amount of the exclusion separately for each of you. You each must complete Part VII of your separate Forms 2555.

Community income.   The amount of the exclusion is not affected by the income-splitting provisions of community property laws. The sum of the amounts figured separately for each of you is the total amount excluded on a joint return.

Line 44.   Report in full on Form 1040 and related forms and schedules all deductions allowed in figuring your adjusted gross income (Form 1040, line 37). Enter on line 44 the total amount of those deductions (such as the deduction for moving expenses, the deduction for one-half of self-employment tax, and the expenses claimed on Schedule C or C-EZ (Form 1040)) that are not allowed because they are allocable to the excluded income. This applies only to deductions definitely related to the excluded earned income. See Pub. 54 for details on how to report your itemized deductions (such as unreimbursed employee business expenses) that are allocable to the excluded income.

IRA deduction.   The IRA deduction is not definitely related to the excluded income. However, special rules apply in figuring the amount of your IRA deduction. For details, see Pub. 590, Individual Retirement Arrangements (IRAs).

Foreign taxes.   You cannot take a credit or deduction for foreign income taxes paid or accrued on income that is excluded under either of the exclusions.

  If all of your foreign earned income is excluded, you cannot claim a credit or deduction for the foreign taxes paid or accrued on that income.

  If only part of your income is excluded, you cannot claim a credit or deduction for the foreign taxes allocable to the excluded income. See Pub. 514, Foreign Tax Credit for Individuals, for details on how to figure the amount allocable to the excluded income.

One-year carryover.   If the amount on line 46 is more than the amount on line 47, you can carry the difference over to your 2007 tax year. If you cannot deduct the excess in 2007 because of the 2007 limit, you cannot carry it over to any future tax year.