I have worked overseas from Jan 2006-Jan 2010 and handled my taxes on a calendar year basis for the physical presence exclusion. This year, I have been out of work from May 2010 until now, and will be returning overseas Sept 2011 for one year. My tax year will be Sept 2011-Sept 2012 so my questions are: Will I be able to prorate the portion of this year (approx 110 days) that I will be out of the country on my taxes for this year (2011) or will I not be eligible for the exclusion until AFTER the full 365 day period has passed?

Hello,

You can indeed have the exclusion prorated based on the above facts.

The physical presence test states that you should be physically present in a foreign country or countries for 330 days in any 12 month period. This 12 month period does not have to be January - December. In your case it could be September 2011 - September 2012. This would give you roughly 120 days in this period that fall within the calendar year. Your foreign earned income exclusion would then be (120/365)*92900 = The lesser of 30,542 or your foreign earned income.

Since the qualifying period ends after the time fo file (June 15) you should request and extension using form 2350.

Best!

Ed

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