Clear Money Guide
What this guide covers
A quick view of the questions and evidence developed below.
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Updated July 29, 2026. Quick answer: No, and the reason is definitional rather than a matter of degree. IRC §911 excludes foreign earned income, and earned income means amounts received for personal services actually performed. Dividends, interest, capital gains and rents are not compensation for services, so they never enter the definition. The exclusion is not a shelter for a portfolio.
More on the 2026 tax figures: the foreign earned income exclusion for 2026.
IRS worksheets from the 2025 Form 1040 instructions, read line by line: Foreign Earned Income Tax Worksheet.
Foreign tax credit (Form 1116) and alternative minimum tax (Form 6251) for 2025, read line by line: Form 1116 category boxes, Form 1116 lines 9 to 14 and Form 1116 lines 25 to 32.
Related reading on this site: FBAR deadline 2027.
More IRS forms and schedules, read line by line: Form 8938 instructions and Form 2555 instructions.
More IRS forms and schedules, read line by line: Form W-8BEN instructions.
More IRS forms and schedules, read line by line: Form 5471 instructions and Form 8833 instructions.
The IRS form or worksheet behind this, read line by line: Form 8621 instructions and Form 926 instructions.
The definition is the whole answer
IRC §911(b)(1)(A) builds foreign earned income out of amounts received for services performed in a foreign country, and §911(b)(1)(B) then lists categories expressly outside it. Because the base definition is services-linked, investment income is not excluded by an exception — it was never in scope to begin with. That distinction matters when you read advice suggesting a portfolio can be sheltered by moving: there is no provision to invoke.
What §911 does supply, and it is load-bearing elsewhere. §911(d)(1) defines a “qualified individual” as one “whose tax home is in a foreign country” and who meets a residence or presence test. That tax home concept is borrowed by IRC §865 for sourcing gains, so §911 governs your investment income indirectly — through the definition it lends, not through the exclusion it grants. That chain is where the sourcing answer actually comes from.
| Income | Inside the exclusion? | Why |
|---|---|---|
| Salary for work performed abroad | Yes | Compensation for personal services |
| Self-employment income from services abroad | Generally yes | Services, subject to the statute’s own limits |
| Dividends and interest | No | Not for services |
| Capital gains | No | Not for services |
| Rents and royalties | No | Not for services |
The practical trap is the sequence, not the rule. Someone who moves abroad, excludes their salary, and concludes their US filing is handled has excluded the one category the provision reaches and left the portfolio fully exposed — to regular tax, and separately to a 3.8% surtax that foreign tax credits cannot touch. The exclusion’s success on wages is what makes the gap on investment income easy to miss.
Separately from what is taxable, there is what must be reported — two different regimes with two different thresholds, and most sources cite the wrong rule for one of them.
Sources
IRC §911(b)(1)(A) and (b)(1)(B), §911(d)(1) and §911(d)(2). Fetched July 2026.
This states what the cited authority says. It is not tax, legal or investment advice. Cross-border tax turns on your citizenship, your tax home, the country you move to and any treaty between it and the United States — none of which a page can see. No filing deadline is stated here; deadlines change and the current instructions govern.
Related
Guides › Retirement Tax Relocation
A separate clause of the same section carves pensions and annuities out of the definition too — 401(k) and IRA withdrawals while living abroad.