As an American expat living in Germany, you’re likely aware of the complexities of filing both US and German taxes. The good news is that there are several tax credits and deductions available that can help reduce your US tax liability. Understanding how to take full advantage of these benefits can save you money and ensure you’re in compliance with both US and German tax laws.
1. Foreign Earned Income Exclusion (FEIE)
One of the most significant tax benefits available to US citizens living abroad is the Foreign Earned Income Exclusion (FEIE). This provision allows you to exclude up to $126,500 (for the 2024 tax year) of your foreign-earned income from US taxation. This means that if you meet the eligibility criteria, you won’t have to pay US taxes on that portion of your income.
Eligibility requirements:
- You must meet one of two tests: the Physical Presence Test (being outside the US for at least 330 days in a 12-month period) or the Bona Fide Residence Test (having a permanent residence in Germany for a full calendar year).
- The income must be earned through employment or self-employment abroad.
The FEIE is highly beneficial, especially for Americans working in Germany, where wages are typically high, and the cost of living can be significant.
2. Foreign Tax Credit (FTC)
The Foreign Tax Credit (FTC) helps Americans avoid double taxation on income that is taxed both in the US and in Germany. If you pay taxes to the German government, you can use the FTC to offset some or all of your US tax liability, which can be especially valuable if you’re also paying German taxes.
How it works:
- You can claim a credit for taxes paid to Germany on income that is also subject to US tax.
- The credit is limited to the amount of US tax that would otherwise be due on the same income. It’s important to note that the credit applies to both income taxes and some types of foreign social security taxes.
- To claim the FTC, you must file Form 1116 along with your annual tax return.
This credit is especially valuable for Americans living in Germany, where high income taxes may be imposed at the local and national levels.
3. Child Tax Credit (CTC)
The Child Tax Credit (CTC) is a tax benefit for US taxpayers with qualifying children. This credit is available regardless of whether you live in the US or abroad, as long as you meet the IRS’s criteria. In 2025, the credit is worth up to $2,000 per child under 17.
How it works:
- To qualify, your child must be under 17 at the end of the tax year and meet other IRS requirements, such as being a US citizen or resident.
- If your income exceeds the limits for a full credit, you may still be eligible for a reduced amount or the Additional Child Tax Credit (ACTC), which is refundable.
Since the credit is aimed at reducing your tax liability, it’s a valuable benefit for expats with dependents.
4. American Opportunity Tax Credit (AOTC)
For Americans who are paying for higher education for themselves or their dependents while living in Germany, the American Opportunity Tax Credit (AOTC) can be a great way to reduce your tax burden. The AOTC allows you to claim up to $2,500 per eligible student for the first four years of college or university education.
Eligibility:
- The student must be enrolled in a degree or certificate program at an eligible educational institution.
- The taxpayer must meet income requirements to qualify for the full credit.
If your child is attending a US-based college or university, or even an international school that meets the IRS requirements, the AOTC can help offset some of the costs of higher education.
5. Student Loan Interest Deduction
If you have student loans and are paying interest on them, the Student Loan Interest Deduction allows you to deduct up to $2,500 in interest paid during the year. This deduction can apply to both federal and private student loans, which is particularly useful for Americans living in Germany who may have acquired US-based student loans prior to moving abroad.
How it works:
- The deduction is limited to interest paid on loans for qualified educational expenses.
- You must meet income requirements to qualify for the deduction, and it phases out for higher earners.
Since the cost of education can be significant, this deduction can help lower your overall taxable income, reducing your US tax liability.
6. Retirement Savings Contributions Credit (Saver’s Credit)
The Saver’s Credit is designed to incentivize low- and moderate-income individuals to save for retirement. If you contribute to a qualified retirement plan, such as an IRA or 401(k), and your income is below certain thresholds, you may be eligible for a credit worth up to $1,000 ($2,000 for married couples filing jointly).
Eligibility requirements:
- You must contribute to a retirement savings account such as an IRA or 401(k).
- Your income must fall below the IRS’s threshold for the credit.
If you’re an American living in Germany and contributing to a US-based retirement account, this credit could help reduce your tax burden.
7. State Tax Deductions and Credits
Even though you’re living in Germany, you may still be liable for state taxes in the US if you are considered a resident of a particular state. Some states, like California or New York, impose taxes on worldwide income for their residents, even if they’re living abroad. If you’re still required to file state taxes, it’s important to check whether there are deductions or credits available in your state for foreign income or taxes paid to Germany.
8. Self-Employment Tax Deductions
If you are self-employed while living in Germany, you may be subject to both US and German self-employment taxes. Fortunately, there are deductions available to help offset some of the tax burdens. The Self-Employment Tax Deduction allows you to deduct half of your self-employment tax from your taxable income.
How it works:
- The deduction applies only to the employee portion of your self-employment taxes, which is calculated at 7.65% of your net earnings.
- You can claim this deduction on Schedule SE when filing your taxes.
This deduction is particularly helpful for US citizens who are freelance workers, consultants, or small business owners abroad.
9. Moving Expenses Deduction (for Certain Expats)
While moving expenses are generally no longer deductible for most taxpayers, they are still deductible for active-duty members of the Armed Forces who move due to a military order. If you’re in this category, you can claim your moving costs for relocation from the US to Germany as part of your moving expense deductions.
How it works:
- Qualified moving expenses include travel costs, shipping of personal items, and other moving-related expenses that meet IRS criteria.
10. Mortgage Interest Deduction
If you have a mortgage on a property in the US, you can continue to deduct mortgage interest payments even while living in Germany. The IRS allows deductions for interest paid on loans secured by your primary residence or a second home, up to certain limits.
How it works:
- The total amount of the mortgage debt eligible for the deduction is limited to $750,000 for loans taken after December 15, 2017 (or $1 million for loans taken before that date).
- The property must be a qualified residence, and the mortgage must be secured by the property.
This deduction can be highly beneficial for expats who maintain property ownership in the US.
11. Charitable Contribution Deduction
If you donate to charitable organizations, the Charitable Contribution Deduction allows you to deduct donations to qualifying US-based charitable organizations from your taxable income. This can be especially helpful for expats who are involved in charity work or who continue supporting US charities while living abroad.
How it works:
- Donations must be made to qualified 501(c)(3) organizations.
- You can deduct both cash contributions and the fair market value of donated property.
This deduction helps reduce your tax liability while also supporting causes you care about.
Living in Germany as an American presents some unique challenges when it comes to tax filing. However, by taking advantage of tax credits and deductions like the Foreign Earned Income Exclusion, the Foreign Tax Credit, and others, you can significantly reduce your tax liability. It’s crucial to understand how these credits and deductions work, as well as how to file the necessary forms, to ensure you stay in compliance and maximize your savings.
