Overview:
If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, for US tax purposes, you may qualify to exclude from your income up to the foreign earned income exclusion amount for that tax year. In addition, you may be able to exclude or deduct a portion of certain foreign housing expenses.
Qualifications for the foreign earned income exclusion and housing exclusion/deduction:
To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must meet all of these qualifications:
1. You must have foreign earned income
2. Your tax home must be in a foreign country
3. You must be one of the following:
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A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year
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A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
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A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.
For more information see http://www.irs.gov/taxtopics/tc856.html