Two ways to stop the United States taxing income you have already paid Colombian tax on. Exclude the income under §911, or credit the Colombian tax under §901. You cannot use both on the same dollar, and choosing wrong is expensive in a way that compounds.
Most of what you will read online resolves this with a one-liner: Colombia’s top rate is 39%, the US top rate is 37%, so the foreign tax credit always wins. That comparison is between top marginal rates and it does not survive contact with an actual Colombian return. This article gives you the real inputs.
Figures verified 9 September 2026.
What are the 2025 and 2026 numbers?
| Tax year | Maximum FEIE per qualifying person | Default housing limit |
|---|---|---|
| 2024 | $126,500 | $37,950 |
| 2025 | $130,000 | $39,000 |
| 2026 | $132,900 | $39,870 |
The exclusion is per qualifying person, so a married couple who both work and both qualify can exclude two full amounts.
The housing exclusion sits on top. It covers qualified housing expenses above a base amount — 16% of the maximum exclusion, printed by the IRS as $20,800 for 2025 — up to a cap. Base and cap are both pro-rated by qualifying days.
The Colombian housing figures almost nobody publishes
The default housing cap is $39,000 for 2025 and $39,870 for 2026. But the IRS publishes an annual list of high-cost locations where the cap is raised, and Colombia is on it.
| Location | 2025 housing limit | 2026 housing limit |
|---|---|---|
| Bogotá | $58,700 / year ($160.82 per day) | $58,700 / year ($160.82 per day) |
| All other cities in Colombia | $49,400 / year ($135.34 per day) | $49,400 / year ($135.34 per day) |
Against the 2025 default, that is roughly $19,700 of extra headroom in Bogotá and $10,400 in Medellín, Cali, Cartagena or Barranquilla. It appears in IRS Notices 2025-16 and 2026-25, and rarely anywhere else.
Be honest about whether it helps you. The high-cost limit only changes your answer once your qualified housing expenses exceed the default cap. If your Medellín rent, utilities and administración come to $18,000 a year, the raised cap is irrelevant. It matters for the Bogotá executive lease, the large family apartment, the household where an employer pays an accommodation allowance.
Worked example, TY2025, Bogotá. Foreign earned income $160,000. Qualified housing expenses $45,000.
- Housing exclusion: $45,000 − $20,800 base = $24,200. Under the default $39,000 cap the expenses would have been trimmed to $39,000 first, giving only $18,200.
- Then the FEIE is limited to foreign earned income minus the housing exclusion claimed: $160,000 − $24,200 = $135,800, so the full $130,000 exclusion is available.
- Total excluded: $154,200, leaving $5,800 of earned income in the US tax base.
Note the order of operations: housing first, then the FEIE. Also note that employees take a housing exclusion while the self-employed take a housing deduction, and neither reduces self-employment tax.
Do I qualify — bona fide residence or physical presence?
Both routes require a tax home in Colombia. Your tax home is the general area of your main place of business or post of duty. You do not have a foreign tax home for any period in which your abode is in the United States, and “abode” is about where your economic, family and personal ties sit — not about whether you own a house back home. Owning a US property, even renting it out, does not by itself create a US abode.
Bona fide residence test (Form 2555, Part II). You must be a bona fide resident of Colombia for an uninterrupted period that includes an entire tax year — 1 January to 31 December for a calendar-year filer. Once established, the status can cover partial years on either side of the qualifying full year. Brief trips to the US are fine if you clearly intend to return without unreasonable delay. You are not a bona fide resident if you have told Colombian authorities you are not a resident and they have accepted that you are not subject to Colombian resident income tax. The IRS decides largely on the facts you report on Form 2555, weighing your intention, your activities, and whether you actually paid Colombian tax.
Here is the Colombia-specific trap. The bona fide residence test is available to US citizens, and to US resident aliens who are citizens or nationals of a country with which the US has an income tax treaty. There is no US–Colombia treaty. So a Colombian citizen who holds a US green card cannot use the bona fide residence test at all. They must qualify under physical presence. It catches mixed-nationality households, and it is easy to miss.
Physical presence test (Form 2555, Part III). 330 full days in a foreign country during any period of 12 consecutive months; the days need not be consecutive. A full day is 24 consecutive hours beginning and ending at midnight, entirely within a foreign country — time over international waters does not count, so the Miami–Bogotá flight day is generally lost. The 12-month window can begin on any day of any month, and you may pick the one that gives the largest exclusion.
Why “39% beats 37%” is the wrong test
Colombia’s personal rate table runs in UVT of taxable income:
| From (UVT) | To (UVT) | Rate |
|---|---|---|
| 0 | 1,090 | 0% |
| 1,090 | 1,700 | 19% |
| 1,700 | 4,100 | 28% |
| 4,100 | 8,670 | 33% |
| 8,670 | 18,970 | 35% |
| 18,970 | 31,000 | 37% |
| 31,000 | + | 39% |
Two things follow immediately. The 39% band only begins above 31,000 UVT of taxable income — a very high figure. And Colombia reaches it through a progressive stack, so the effective rate sits far below the marginal rate at every income level.
On top of that, the cédula general allows real reductions. Exempt income plus deductions are capped at 40% of net income, or 1,340 UVT ($66,730,660 for AG2025), whichever is lower, and the 25% renta exenta laboral — itself capped at 790 UVT ($39,341,210 for AG2025) — sits inside that cap rather than on top of it. Dependants, medicina prepagada and mortgage interest of up to 1,200 UVT a year all compete for room within it.
So the Colombian tax you actually pay, and therefore the credit you actually get, is computed on a base meaningfully smaller than gross income, at an effective rate meaningfully below 39%.
Colombian effective rates, illustrated. These are worked straight off the Art. 241 table, applied to Colombian taxable income — the base that remains after the cédula general reductions. They describe the Colombian side and nothing else:
| Taxable income | Colombian tax | Effective rate |
|---|---|---|
| 3,000 UVT | 479.9 UVT | 16.0% |
| 10,000 UVT | 2,761.5 UVT | 27.6% |
| 35,000 UVT | 11,912.1 UVT | 34.0% |
Work the 10,000 UVT line by hand to see it: nothing on the first 1,090; 610 × 19% = 115.9; 2,400 × 28% = 672; 4,570 × 33% = 1,508.1; 1,330 × 35% = 465.5. Total 2,761.5 UVT on 10,000 UVT of income.
Read the last row carefully. Even at 35,000 UVT — comfortably inside the 39% band — the Colombian effective rate is 34%. The rate Colombia charges on the last peso and the rate you actually hand over are different numbers, and the “39% beats 37%” shortcut quotes the first while implying the second.
Now resist doing the same thing in reverse. It is tempting to set 34% next to a US percentage and declare a winner. Do not — including with the numbers above. Those are effective rates on Colombian taxable income, the base left after the cédula general has done its work. A US effective rate is computed on US taxable income, a base built from different rules: no cédula, a standard or itemised deduction instead, different treatment of pensions and housing, different sourcing, and pesos translated into dollars. The two fractions have unreconciled denominators. The table tells you what Colombia charges. On its own it cannot tell you what is left for the US to charge.
What actually has to be computed is not a rate at all. It is three dollar amounts, on your own figures:
- Colombian tax actually assessed for the year, off the declaración de renta, translated to dollars.
- Your US tax on the same income under US rules, with the Colombian tax credited on Form 1116 — basket by basket, because credits do not cross baskets.
- Your US tax on the same income under US rules, with the FEIE and housing exclusion claimed instead.
Then add self-employment tax, which neither method touches, to both (2) and (3). Whichever is smaller wins.
The proposition the shortcut mangles is still true, and it is the reason this exercise is worth doing: because the 39% band starts above 31,000 UVT and the cédula general permits real deductions, at moderate incomes the Colombian effective rate can sit below the US rate on the same income, leaving residual US tax after the credit — exactly the situation where the exclusion may be the better answer. Above the exclusion cap the credit usually wins, because the exclusion runs out while Colombian tax does not. But you get there by running the three numbers, not by reading a rate table.
It is a calculation. Run it on your numbers, both ways, before you elect.
How does the foreign tax credit actually work?
Form 1116, and there are seven baskets: §951A category, foreign branch, passive category, general category, §901(j) sanctioned-country income, income re-sourced by treaty, and lump-sum distributions. A separate Form 1116 is required for each.
Credits do not cross baskets. Colombian salary and self-employment income are normally general basket. Colombian interest, dividends and most capital gains are normally passive basket. This is why an American in Bogotá can owe real US tax on Colombian investment income while holding unused general-basket credits they cannot touch.
Carryback and carryforward. Excess credits go back one year and forward ten. That is a genuine stored asset — a high-Colombian-tax year can shelter a future low-tax year. The FEIE generates nothing carryable.
The de minimis shortcut. If all your foreign income is passive category, it was reported on qualified payee statements, and your total creditable foreign taxes are no more than $300 ($600 if married filing jointly), you may claim the credit directly on Form 1040 without Form 1116.
Only income taxes qualify. Whether Colombia’s ICA municipal turnover tax, the 4×1000 financial transactions tax, or the minimum effective tax rate are creditable needs specific analysis — a turnover tax and a transactions tax are poor candidates. Confirm with a US international tax specialist rather than assuming every peso on your assessment counts.
The four things that should decide it
1. The FEIE is capped and Colombian tax is not. Above $132,900 (2026) the exclusion does nothing further, but Colombia keeps charging. Only the credit scales.
2. The FEIE wastes Colombian tax you already paid. You cannot take a credit or a deduction for foreign taxes on income you exclude. Exclude $130,000 of income on which you paid 30% Colombian tax and that credit is simply gone.
3. The FEIE does not shelter self-employment tax. This is the big one for freelancers and consultants. Self-employment tax at 15.3% applies to your full net earnings even when every dollar of the underlying income is excluded — the IRS is explicit that you take all self-employment income into account in figuring net earnings, exclusion notwithstanding. The housing exclusion and deduction do not reduce it either. And with no US–Colombia totalization agreement, there is no certificate of coverage to elect out.
4. The FEIE costs you the refundable child credit and locks you in. You cannot take the Additional Child Tax Credit in a year you claim the exclusion or the housing deduction. And once elected, the FEIE stays in effect for all future years until revoked — after which you cannot claim it for the next five tax years without IRS approval.
One quieter cost: excluded income still counts in determining the rate on your non-excluded income — the stacking rule — so the exclusion delivers less relief at high incomes than its face value suggests.
Making the call
At high earned income the foreign tax credit usually wins: the exclusion runs out, the credit does not, and excess credits carry forward ten years. At moderate income, especially where the cédula general has done real work on your Colombian base, the effective Colombian rate can fall below the US rate and the exclusion can be the better answer. Where housing costs are high — Bogotá especially — the raised $58,700 limit shifts the arithmetic further toward the exclusion than most people expect.
None of that is a rule. It is a model you run once, on your real numbers, ideally before your first full year of Colombian residency, because the five-year lockout means the first election matters more than any that follow.
Frequently asked questions
Can I claim the FEIE and the foreign tax credit in the same year? Yes, but not on the same income. You can exclude earned income under §911 and separately credit Colombian tax paid on income you did not exclude — rental income, dividends, or earned income above the cap. What you cannot do is credit foreign tax attributable to excluded income.
Does the Bogotá housing limit apply if I live in Medellín? No. Bogotá has its own limit of $58,700; every other city in Colombia uses $49,400. Both figures apply for 2025 and 2026.
I’m a green card holder with Colombian citizenship. Which test do I use? The physical presence test. The bona fide residence test requires US citizenship or citizenship of a treaty country, and there is no US–Colombia treaty.
If the FEIE covers all my income, do I still need to file? Yes. The exclusion is only available if you claim it on a filed return with Form 2555 attached. Filing obligations for the FBAR and other information returns are entirely separate and unaffected — see FBAR and FATCA for Americans in Colombia.
Can I switch from FEIE to the credit next year if the numbers change? You can, but revoking the exclusion bars you from claiming it again for five tax years without IRS approval. Model both methods before your first election rather than treating it as an annual toggle.
Want this modelled on your actual numbers rather than a rule of thumb? The Colombian Accountant prepares both the declaración de renta and the US return, which is the only way to see which method genuinely wins for you. Get in touch before your next filing season.
This article is general information, not tax or legal advice. Figures were verified on 9 September 2026 and change frequently — Colombian tax law in particular changed materially between December 2025 and September 2026. Confirm current figures and your own circumstances with a qualified professional before acting.