The Bona Fide Residence Test is a criterion used by the IRS to determine if an individual qualifies for the foreign earned income exclusion, based on their physical presence and intention to reside in a foreign country for an uninterrupted period. It requires the taxpayer to establish a genuine, long-term residence in a foreign country, not just a temporary stay, to be eligible for tax benefits.
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The Foreign Earned Income Exclusion allows U.S. citizens and resident aliens who live and work abroad to exclude a certain amount of their foreign-earned income from U.S. federal income tax, potentially reducing their overall tax liability. To qualify, individuals must meet either the bona fide residence test or the physical presence test and must have a tax home in a foreign country.
The Physical Presence Test is used by the IRS to determine if a U.S. citizen or resident alien has spent enough time abroad to qualify for the foreign earned income exclusion. To meet this test, the individual must be physically present in a foreign country or countries for at least 330 full days during any 12-month period, which can be consecutive or non-consecutive days.