Is housing allowance factored in 87,500
 

Hey guys , a question for you USA expats. Is the housing and transportation allowances part of the 87,500 tax free dollars?

The $87,500 limit is only for foreign earned "income", which typically means salary, bonus, etc... Housing exemption is separate and location based. Transportation is not exempt unless you count it as a moving expense.
See IRS Publication 54 for more details. You can download Pub 54 directly from the IRS website, or better yet Google "IRS Pub 54". :ok:

somebody told me that if you live outside of the US for more than 330 days/year, you are exempt from paying tax.
any truth to this?

Here, if your SOPs don't put you to sleep, this might...


Sec. 911. Citizens or residents of the United States living abroad

Sec. 861. Income from sources within the United States

Sec. 862. Income from sources without the United States

Sec. 863. Special rules for determining source

Sec. 864. Definitions and special rules


...and if one can't have enough..... well, here is the entire code, I read it all myself :)

Internal Revenue Code (26 USC)

southflyer's info is valid, but IRS Publication 54 has all the info for foreign filers for the last tax year (2007). It's an easier read too:}

IRS Pub 54