The Foreign Earned Income Exclusion
Although you’re required to report your worldwide income on your U.S. income tax return, you may qualify to exclude some of your foreign earned income from tax under the foreign earned income exclusion.
A note about Foreign Earned Income: Foreign earned income is wages, salaries, professional fees, and other compensation received for personal services you performed in a foreign country, no matter where or how you are paid, as long as your tax home is in a foreign country and you meet either the bona fide residence test or the physical presence test . Any compensation you make from work that is performed outside the US is income from a foreign source, even if it is deposited to a US bank and your employer is located in the US.
The amount of foreign earned Income that can be excluded is adjusted annually for inflation.
Chapter 4 of IRS Publication 54 has a good discussion and covers all the requirements.
The Foreign Housing Exclusion or Deduction
The exclusion is for housing considered paid with employer-provided amounts. The deduction is for housing paid with self-employment earnings.
Housing expenses include things like rent, utilities (other than phone charges), and real and personal property insurance.
A detailed list of housing expenses is included in IRS Publication 54.
Foreign Tax Credit or Deduction
If you paid or accrued foreign taxes to a foreign country on foreign source income and are subject to U.S. tax on the same income, you may be able to take either a credit or an itemized deduction for those taxes.
However, you can’t take a foreign tax credit for taxes on income you excluded under the foreign earned income exclusion or the foreign housing exclusion.