Understanding the Bona Fide Residence Test
Understanding the Bona Fide Residence Test
If you’re a U.S. citizen or green card holder living abroad, understanding the Foreign Earned Income Exclusion (FEIE) can save you thousands on your U.S. tax return. But to qualify, you’ll need to meet either the Bona Fide Residence Test or the Physical Presence Test. This article explores the Bona Fide Residence Test in detail, compares it to the Physical Presence Test, and offers real-world examples to help you determine which one applies to you.
What Is the Bona Fide Residence Test?
The Bona Fide Residence Test allows U.S. citizens and certain resident aliens to qualify for the Foreign Earned Income Exclusion by proving that they’ve established a true residence in a foreign country for an uninterrupted period that includes a full calendar year—from January 1 to December 31.
Key Requirements:
Must be a U.S. citizen, or a resident alien of a treaty country
Must reside in a foreign country (or countries)
Must have a clear intention to live abroad permanently or indefinitely
Must maintain that foreign residence for a full calendar year
What Counts as “Bona Fide Residence”?
Being physically present in a foreign country isn’t enough. The IRS evaluates your intent and ties to the foreign country, such as:
Whether you’ve leased or bought a home abroad
Your employment status and length of stay
Whether you pay local taxes and register with authorities
How well you’ve integrated into the community
Temporary assignments with defined end dates generally do not qualify.
Example: Bona Fide Resident
Anna, a U.S. citizen, moved to Spain in January 2023 for a long-term teaching job. She signed a two-year lease, registered with local authorities, and joined a local professional network. Although she made two short visits to the U.S., she maintained uninterrupted foreign residence for all of 2023. Anna qualifies under the Bona Fide Residence Test for the 2023 tax year.
Example: Not a Bona Fide Resident
Mark is a U.S. citizen who relocated to Australia in June 2023 on a 10-month contract. He returned to the U.S. in April 2024. Because he didn’t reside abroad for a full calendar year and the assignment was temporary, Mark doesn’t meet the Bona Fide Residence Test—but he may qualify under the Physical Presence Test instead.
Comparing Bona Fide Residence vs. Physical Presence Test
Feature | Bona Fide Residence Test | Physical Presence Test |
|---|---|---|
Time Requirement | Full calendar year (Jan 1 – Dec 31) | 330 full days in a 12-month period |
Citizenship Requirement | U.S. citizen or resident alien of treaty country | Any U.S. citizen or resident alien |
Basis | Intent to live abroad long-term | Actual time spent abroad |
Flexibility | Less flexible (calendar year only) | Flexible 12-month rolling window |
IRS Review | Subjective, fact-based review | Objective, countable days |
Short U.S. Visits Allowed | Yes, if foreign residency remains uninterrupted | Yes, up to 35 days in the U.S. during period |
Example: Physical Presence Test
John moves to Japan on March 15, 2024. He remains abroad and only returns to the U.S. for 10 days that year. From March 20, 2024 to March 19, 2025, he spends 330 full days outside the U.S. John qualifies for the FEIE under the Physical Presence Test, even though he doesn’t qualify under the Bona Fide Residence Test.
What Can You Claim?
If you qualify under either test, you may be eligible to claim:
Foreign Earned Income Exclusion (up to $126,500 for 2024)
Foreign Housing Exclusion or Deduction
IRS Red Flags to Avoid
Returning to the U.S. too frequently
Short-term work contracts without long-term intent
Not paying foreign taxes or establishing strong ties abroad
Poor recordkeeping of travel days or insufficient documentation
Need Help Choosing the Right Test?
Choosing the right test can make a big difference in your tax savings. The Bona Fide Residence Test is ideal for those with long-term commitments abroad. The Physical Presence Test is more flexible and works for shorter-term stays.
If you’re unsure which test applies to your situation or how to document your claim, the cross-border tax professionals at ModernAxis can help you navigate the rules and file accurately.
Final Thoughts
Whether you’re a digital nomad, a long-term expat, or just moved abroad for work, understanding the difference between these two tests is crucial. If your stay is permanent or indefinite and you’re integrated into the local culture, you might qualify under the Bona Fide Residence Test. If you’re on a shorter stint or moving mid-year, the Physical Presence Test may be your best bet.
Either way, plan ahead, keep great records, and consider working with a tax expert to ensure you’re maximizing your benefits and staying compliant with IRS rules.