New's Flash:  Due to the American Jobs Creation Act of 2004, certain expatriated individuals are subject to new tax rules.

The new tax rules, retroactive as of June 3, 2004, affect U.S. citizens and former long term resident expatriates of the U.S. In order to expatriate, individuals must now file an information statement with the IRS certifying that they have fully complied with U.S. tax laws for the five year period immediately preceding expatriation. If the information statement is not filed, the individuals will continue to be treated as citizens or long-term residents for U.S. tax purposes.

Here is a general summary of the rules for excluding income earned and costs paid on your behalf while you were abroad.
Types of Exclusions:
Qualifying individuals are entitled to different types of exclusions under the tax law against income received while working abroad. Among these are the following: (i) a foreign earned income exclusion; (ii) a housing cost amount exclusion; and (iii) an exclusion for employer-provided meals and lodging.
When you elect to exclude foreign earned income,  you may exclude up to $80,000 of foreign earned income annually, computed on a daily basis. To determine the amount of your exclusion in any year, multiply the $80,000 limit by a fraction the numerator of which is the number of days you were a qualified individual for purposes of the exclusion and the denominator of which is the number of days in the year.

The housing cost amount  exclusion is available only if the housing expenses are attributable to employer-provided amounts. If the amounts are not so attributable, you may deduct the expenses. The housing cost exclusion is equal to housing expenses less a "housing base amount." Included in the category of housing expenses are: rent, utilities, real and personal property insurance, occupancy taxes, nonrefundable fees paid for securing a leasehold, rental of furniture and accessories, residential parking, and repairs. Housing expenses include items you paid or incurred or that were paid or incurred for you for housing in a foreign country for yourself, your spouse, and your dependents. The housing base amount is 16% of the salary of a grade GS-14 government employee multiplied by the number of days you qualified for an exclusion.
If you elect to exclude your housing costs, they must be claimed against your earned income before the foreign earned income exclusion. Housing costs must be reasonable and not lavish or extravagant under the circumstances. Furthermore, this exclusion is limited by the total amount of your foreign earned income for the taxable year.

An exclusion is provided for employer-provided meals and lodging  if certain requirements are met. For instance, the value of meals is excludable if they are provided on your employer's business premises for the employer's convenience. Furthermore, the value of employer-provided lodging is excludable if the lodging is furnished on your employer's business premises, it is furnished for the employer's convenience, and you are required to accept the lodging as a condition of employment.
Qualification for Exclusions:
To qualify for the foreign earned income and housing cost exclusions, you must have a "tax home" in a foreign country and be either:
[1] a U.S. citizen and a "bona fide resident" of a foreign country or countries, for an  uninterrupted period of the entire taxable year; or
[2] a U.S. citizen or resident who is present in a foreign country, or countries, for 330 full  days during any period of 12 consecutive months under the "physical presence test."
Your "tax home" is considered to be located at your regular or principal (if more than one regular) place of business or, if you have no regular or principal place of business because of the nature of the business, at your regular place of abode. You must maintain your foreign tax home status for a minimum of 11 months throughout the year.
Generally, before you can be considered a bona fide resident of a foreign country, you must be physically present in the foreign country and have an intent to make a home in that country for an indefinite period of time.
If you do not satisfy the bona fide resident test, you may still qualify for the exclusions and deduction if you meet the "physical presence" test. Generally, this test is satisfied if you are present in a foreign country or countries for at least 330 full days of any 12-consecutive-month period.