Foreign Earned Income Exclusion 2027 $137,300 and Covered Expatriate Test $218,000 (Rev. Proc. 2026-35)

The three 2027 figures next to 2026

All 2027 figures are from Rev. Proc. 2026-35; 2026 figures are from Rev. Proc. 2025-32. The FEIE and the section 877A exclusion apply to taxable years beginning in 2027; the covered-expatriate income test applies by calendar year of the expatriation date. For the wider 2027 set see our page on the 2027 tax brackets in Rev. Proc. 2026-35 and the 2027 estate and gift figures.

Six years of the same three figures

The same sections appear in every annual Revenue Procedure. The table reads each one in its own document.

All three have risen every year in the table. The FEIE is up 22.59% since 2022 (our arithmetic: $25,300 on $112,000).

What the exclusion covers, and what it does not

The Code lets a qualified individual elect to exclude foreign earned income (26 U.S.C. 911(a)). A qualified individual has a tax home in a foreign country and either is a bona fide resident of a foreign country for a full taxable year, or is present abroad for at least 330 full days in any period of 12 consecutive months (911(d)(1)). Foreign earned income is pay for personal services performed abroad. Three consequences for a reader who holds US real estate or funds while living overseas:

• Investment income is outside it. Rent from a US rental, dividends from non-traded REITs and BDCs, interest, capital gains and passive K-1 income are not compensation for personal services. The exclusion does not reduce them.
• Pensions and annuities are outside it. The statute says foreign earned income does not include amounts received as a pension or annuity (911(b)(1)(B)(i)).
• The excluded dollars still set the rate on the rest. Section 911(f) computes tax on the non-excluded income as if the excluded amount were also taxed, then subtracts the tax on the excluded amount. Other income is taxed at the higher brackets, not the bottom ones.

Housing. A separate housing exclusion or deduction uses 16% of the FEIE as a base and 30% as a cap (911(c)(1)(B) and (c)(2)(A)). On the 2027 exclusion amount that is $21,968 and $41,190 for a full year, so up to $19,222 of qualifying housing cost above the base before any location adjustment (our arithmetic; for 2026: $21,264, $39,870 and $18,606). Rev. Proc. 2026-35 does not list location-specific housing cost amounts, and we have not read an IRS housing notice for 2027, so those figures are not verified here.

Worked examples (our arithmetic)

Example 1: pay plus rental. A consultant who qualifies for a full year in 2027 earns $160,000 for work abroad and has $90,000 of net rental income from US property. The exclusion removes $137,300 of the pay, leaving $22,700. Income left in gross income before deductions is $22,700 plus $90,000, or $112,700. The exclusion removes 54.9% of the $250,000 total; the rental income is untouched.

Example 2: retiree abroad. A US citizen who lives abroad with $250,000 a year from rent, REIT and BDC dividends and a pension has no pay for services. The exclusion is $0.

Example 3: income test across the year end. Someone whose five-year average annual net income tax is $215,000 is over the 2026 test of more than $211,000, so meets the income test if the expatriation date is in 2026, but is under the 2027 test of more than $218,000 (the net worth test and the five-year compliance certification still apply).

Example 4: the deemed-sale gain. A covered expatriate with $1,500,000 of net gain across a rental, fund interests and a brokerage account has $590,000 above the $910,000 exclusion for 2026 and $560,000 above the $940,000 exclusion for 2027.

The net worth test does not move

Section 877(a)(2) lists three triggers: an average annual net income tax greater than $124,000 (indexed), net worth of $2,000,000 or more, and failure to certify five years of tax compliance. Only the first has an inflation clause; the sentence that provides the adjustment names “such $124,000 amount.” That is why Rev. Proc. 2026-35 section 3.39 restates only the income test. For an investor with real estate funds, LLC interests and rentals, the $2,000,000 test is the one most likely to apply. Our page on the expatriation list for the quarter ending September 30, 2026 reads the three tests, Form 8854 and how property is valued, and our page on the FBAR and Form 8938 thresholds covers the reporting that follows a foreign account or asset.

What a reader can do with this

• Sort income into two piles. Pay for work abroad is the only pile the FEIE can reduce. Everything that comes from a property, a fund or a pension is the other pile; the 2027 increase of $4,400 does nothing for it.
• Check the expatriation date against December 31, 2026. The 2026 and 2027 figures differ ($211,000 and $910,000 against $218,000 and $940,000).
• Test the $2,000,000 on a net worth statement that includes fund interests, LLC units and entity-held rentals, not only bank balances.
• Keep the filing duties in view. The FEIE is claimed on Form 2555 with a US return; foreign accounts and assets may also trigger the FBAR and Form 8938.

The decision, and who makes it. Whether to claim the FEIE or the foreign tax credit, whether to give up citizenship or a green card, and how to value a fund interest are questions for a US international tax CPA or tax attorney. Nothing here is a recommendation. The Revenue Procedure applies the Code as it stands on its release date; Congress can change any of this.

This is analysis of public documents, not investment, legal or tax advice.

FAQ

Sources, read and saved on November 6, 2026: Internal Revenue Service, Rev. Proc. 2026-35 (sections 3.39, 3.40, 3.41) and Rev. Proc. 2025-32, 2024-40, 2023-34, 2022-38 and 2021-45 (the matching sections); 26 U.S.C. 877, 877A and 911 (Legal Information Institute text). Worked examples are our arithmetic. This is analysis of public documents, not investment, legal or tax advice.