MODIFICATION OF EXCLUSION FOR CITIZENS LIVING ABROAD.

SEC. 515. MODIFICATION OF EXCLUSION FOR CITIZENS LIVING ABROAD. (a) Inflation Adjustment of Foreign Earned Income Limitation.—Clause (ii) of section 911(b)(2)(D) (relating to inflation adjustment) is amended—(1) by striking “2007” and inserting “2005”, and (2) by striking “2006” in subclause (II) and inserting “2004”. (b) Modification of Housing Cost Amount.—(1) Modification of housing cost floor.—Clause (i) of section 911(c)(1)(B) is amended to read as follows: “(i) 16 percent of the amount (computed on a daily basis) in effect under subsection (b)(2)(D) for the calendar year in which such taxable year begins, multiplied by”. (2) Maximum amount of exclusion.—(A) In general.—Subparagraph (A) of section 911(c)(1) is amended by inserting “to the extent such expenses do not exceed the amount determined under paragraph (2)” after “the taxable year”. (B) Limitation.—Subsection (c) of section 911 is amended by redesignating paragraphs (2) and (3) as paragraphs (3) and (4), respectively, and by inserting after paragraph (1) the following new paragraph: “(2) Limitation.—“(A) In general.—The amount determined under this paragraph is an amount equal to the product of—“(i) 30 percent (adjusted as may be provided under subparagraph (B)) of the amount (computed on a daily basis) in effect under subsection (b)(2)(D) for the calendar year in which the taxable year of the individual begins, multiplied by “(ii) the number of days of such taxable year within the applicable period described in subparagraph (A) or (B) of subsection (d)(1). “(B) Regulations.—The Secretary may issue regulations or other guidance providing for the adjustment of the percentage under subparagraph (A)(i) on the basis of geographic differences in housing costs relative to housing costs in the United States.”. (C) Conforming amendments.—(i) Section 911(d)(4) is amended by striking “and (c)(1)(B)(ii)” and inserting “, (c)(1)(B)(ii), and (c)(2)(A)(ii)”. (ii) Section 911(d)(7) is amended by striking “subsection (c)(3)” and inserting “subsection (c)(4)”. (c) Rates of Tax Applicable to Nonexcluded Income.—Section 911 (relating to exclusion of certain income of citizens and residents of the United States living abroad) is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection: “(f) Determination of Tax Liability on Nonexcluded Amounts.—For purposes of this chapter, if any amount is excluded 120 STAT. 368 from the gross income of a taxpayer under subsection (a) for any taxable year, then, notwithstanding section 1 or 55—“(1) the tax imposed by section 1 on the taxpayer for such taxable year shall be equal to the excess (if any) of—“(A) the tax which would be imposed by section 1 for the taxable year if the taxpayer’s taxable income were increased by the amount excluded under subsection (a) for the taxable year, over “(B) the tax which would be imposed by section 1 for the taxable year if the taxpayer’s taxable income were equal to the amount excluded under subsection (a) for the taxable year, and “(2) the tentative minimum tax under section 55 for such taxable year shall be equal to the excess (if any) of—“(A) the amount which would be such tentative minimum tax for the taxable year if the taxpayer’s taxable excess were increased by the amount excluded under subsection (a) for the taxable year, over “(B) the amount which would be such tentative minimum tax for the taxable year if the taxpayer’s taxable excess were equal to the amount excluded under subsection (a) for the taxable year. For purposes of this subsection, the amount excluded under subsection (a) shall be reduced by the aggregate amount of any deductions or exclusions disallowed under subsection (d)(6) with respect to such excluded amount.”. (d) Effective Date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2005.