By Gruv Editorial Team
You did it. You actually pulled it off.
You packed the bags, navigated the visa maze, and are finally living the life you sketched out in notebooks for years. The view from your apartment in Lisbon is real. The smell of street food in Bangkok is your daily reality. You're freelancing from a place that feels like a permanent vacation.
But as you start thinking about taxes, a confusing, three-word phrase keeps popping up in your research: tax home.
It’s simple, right? You live in Spain, so your tax home is in Spain. That’s what common sense says. Unfortunately, the IRS doesn't always run on common sense. For thousands of US expats, making that exact assumption is a gut-wrenching mistake—one that can instantly disqualify you from saving tens of thousands of dollars with the Foreign Earned Income Exclusion.
Look, this isn't meant to scare you. It's meant to prepare you. Getting this one concept right is the absolute foundation of a smart expat tax strategy. So let's break down what the IRS really means when they talk about your tax home, why it often has nothing to do with where you sleep, and how mastering this idea is your ticket to keeping more of your hard-earned money.
Let's clear this up right away, because it trips up almost everyone. The IRS doesn't think about "home" the way you do.
Imagine you live in a quiet suburb of Dallas, but you commute to a big office in Fort Worth every single day. That's where you earn your living. That's where your professional life is centered. If the IRS asked you for your "tax home," what would you say? It’s not your house with the nice backyard in the suburbs. It’s Fort Worth.
That’s it. That’s the core concept.
Your tax home is simply your primary place of business, employment, or post of duty. It doesn't matter where you keep your family, your dog, or your favorite armchair. This is purely an economic definition, not a personal one. It’s about where you earn your bread.
Think of it as your economic center of gravity. If you have one primary job, it’s the city or general area where that office is located. If you're a freelancer with clients all over, it gets a bit more nuanced. The IRS will look at a few things to figure out your main post of duty:
Understanding this distinction is the absolute bedrock for every other expat tax rule. It’s the first domino that has to fall correctly. Get this part wrong, and your whole strategy for saving money on taxes can collapse before it even starts.
Let's get real about the one rule that trips up more US expats than any other.
You’re living in Lisbon, but you still keep that US bank account open. You vote in elections back home. And your prized vintage guitar collection? It's safe and sound in your parents' attic in Ohio. These seem like harmless threads connecting you to your old life. To the IRS, however, they can look like an anchor chain holding you firmly to US soil.
This brings us to the most critical, and often misunderstood, part of this whole discussion: the 'abode' rule.
Here’s the deal, straight up: You cannot have a tax home in a foreign country if you maintain an 'abode' in the United States.
So, what exactly is an "abode"? It's not just a house or an apartment. Think of your abode as your true center of gravity—your home in the most real and substantial sense. It’s where your life is fundamentally rooted, defined by your deepest personal, family, and economic ties.
If the IRS investigates your situation, they aren't just looking at your employment contract. They’re playing detective, piecing together a picture of your life. They’ll look at things like:
If the weight of that evidence points to the US, the IRS will conclude your abode is there. And if your abode is in the US, your tax home is there, too. Full stop. It doesn’t matter if you work 365 days a year in Tokyo. The abode rule is a brick wall; it overrides your physical location and your place of work.
This is the gut punch. This is why getting this right is so important.
So, what if understanding one single tax term could legally shield over $120,000 of your income from US taxes? It sounds like a gimmick, but it’s not. For us expats, that term is "tax home," and it’s the absolute gatekeeper to the powerful Foreign Earned Income Exclusion (FEIE).
Think of qualifying for the FEIE like trying to open a high-security vault. It requires two separate keys, and you have to use them in the right order.
The first key is your foreign tax home. The second key is passing either the Bona Fide Residence Test or the Physical Presence Test.
Here’s the part everyone misses: if you don’t have that first key, the second one is worthless. You can’t even get to the second lock.
Let me be crystal clear. The IRS has a two-part test for the FEIE, and establishing a foreign tax home is the very first part. It is not optional. It’s the ticket you need just to get into the stadium. If the IRS decides your tax home is still in the US—usually because of that tricky "abode" rule we just talked about—then it doesn't matter how long you’ve lived abroad. It doesn't matter if you spent 360 days in Lisbon. You fail the first test, and you cannot claim the exclusion. Period.
It’s a gut punch. We’ve seen freelancers meticulously plan their lives abroad, only to have their entire tax strategy crumble because they overlooked this foundational step. Don’t let that be you. Getting this right is everything.
Here’s what you need to burn into your brain:
So, you’re living the dream. Working from a laptop in a Bali co-working space one month, a Berlin café the next. It’s the ultimate freedom, right? But that constant motion, the very thing that makes the digital nomad life so incredible, can become a huge liability when the IRS gets involved.
If you move constantly without putting down any real roots, you risk being classified as an itinerant. It sounds like something out of an old novel, but in tax terms, it’s a problem. An itinerant is someone without a regular or main place of business. For you, this means your tax home isn't a fixed city; it’s wherever you happen to be working at that moment.
Think about it this way. The logic behind the Foreign Earned Income Exclusion (FEIE) is to give you a tax break because you're working far away from your economic center. But if you don’t have a center—if your "office" is just your backpack and your current Airbnb—then what are you away from?
The IRS’s answer is blunt: nothing.
And here’s the gut punch: because your tax home is always with you, you can never satisfy the requirement of having a tax home in a foreign country. You can’t be away from a home you don’t have. This single fact almost always disqualifies you from claiming the FEIE and can even create a mess with state taxes back in the US.
This doesn't mean you have to give up the lifestyle. It just means you have to be more deliberate. Instead of aimless wandering, you need to consciously establish a "home base" in one foreign country.
Alright, let's bring this home. You've absorbed a ton of information, and it can feel a little overwhelming. That's normal. The key now is to stop thinking and start doing. Let's turn all this theory into a simple, actionable plan to make sure your tax situation is as solid as your new life abroad.
Don't leave your tax home status to chance. Think of it less like a label the IRS gives you and more like a structure you intentionally build, brick by brick. You are the architect of your financial life abroad, and right now, you need to lay a strong foundation. If you just cross your fingers and hope for the best, you’re gambling with your income. We don’t do that.
So, where do you start? You start by creating a clear, undeniable paper trail that proves where your center of gravity is. Here’s your checklist.
This is probably the most critical point to get right. For the purposes of claiming that all-important Foreign Earned Income Exclusion, the answer is a hard no. Think of them as being chained together. If the IRS looks at all your ties and decides your "abode"—your real, substantial home—is in the US, then your tax home automatically snaps back to the US, too. It doesn't matter if you're working full-time in Tokyo. A US abode means a US tax home. It’s an automatic disqualification from the FEIE.
This is a big one. Does that house you own back in Phoenix automatically sink your expat tax status? Not automatically, but you need to be incredibly careful here. It’s a huge red flag for the IRS. If you’re just letting it sit empty or having family stay there for free, you’re on very shaky ground. Your best defense is to treat it like a pure business asset. Rent it out at a fair market rate to someone you're not related to. This helps you argue that you've moved on and it's an investment, not your home-in-waiting. But be warned: it makes your case much more complicated and requires meticulous records.
Think of yourself as a lawyer building a case, and the IRS is the jury. Your word isn't enough. You need a mountain of evidence. This is where you become a document hoarder, and it's a good thing. We're talking about a paper trail that screams, "I live and work here!" Your proof is your shield. Your case file should include things like: * Your signed foreign employment contract or client agreements. * A long-term apartment lease in your name. * Utility bills (electricity, internet, water) addressed to you at your foreign residence. * Local bank statements showing day-to-day transactions. * Proof of community ties, like a gym membership, library card, or volunteer records.
This is the modern freelancer's dilemma, isn't it? You're in Lisbon, but your client—and your paycheck—is in San Francisco. Good news first: your tax home is generally where you physically do the work. So, Lisbon it is. But here's the catch. That US employer is a very, very strong tie back to the States. It means the IRS will look extra closely at everything else—your US bank accounts, your family ties, where you vote. You have to be doubly sure you've severed other significant connections to prove your abode is truly outside the US.