Tax Deduction for Temporary Housing Out-Of-State

If you’re sent out on a temporary work assignment, you may have run up big bills for living expenses, including housing. Depending on the circumstances, you may deduct these expenses on your income tax return.

If you require temporary housing because of work assignments, the IRS permits tax deductions for working out of state. Because IRS rules are very specific on this issue, it is crucial that you document every aspect of your temporary work assignment. Temporary housing includes renting a house or apartment, as well as the cost of any utilities but is not limited to those types of rentals. Staying in motels or hotels for your work assignment is also considered temporary housing.

Whether or not you can deduct your temporary housing expenses depends on the term “temporary,” as well as the location. Your tax home, defined by the IRS, is the general area of your permanent place of employment, not necessarily the site of your family home. The temporary work assignment must last less than one year, and it must be out of state, beyond commuting distance, to qualify. There’s another catch: If the work assignment lasts more than one year, the IRS considers it indefinite, not temporary. However, if you thought the work assignment was going to last less than one year, but it turns out to last longer than that, the IRS considers it temporary. The IRS focuses on the intent in this case. Once your expectation of how long your work assignment lasts changes, it’s no longer considered temporary. You can also not deduct temporary work assignment expenses if your employer has reimbursed you. The IRS only allows such deductions for unreimbursed employee business expenses.

The Tax Cuts and Jobs Act changed which living expenses are tax deductible. It does not change the temporary housing deduction, but many other formerly tax-deductible expenses no longer exist. These changes include deducting mileage for travel, as well as the difference between General Services Administration’s guidelines for meal costs and the amount the individual actually received. Previously, if you worked in an area where the GSA guidelines considered $74 dollars a day as expected meal costs and you received just $35 a day, you could deduct the difference in your income tax return. That is no longer the case.

If you were working on an out-of-state temporary assignment in 2017, you may deduct expenses for lodging, meals, transportation and business-related entertainment. You must have records proving the business purpose, business relationship, time and place, with the expense amount. Without such records, these living expenses are not tax deductible. You file for unreimbursed business expenses by using either Form 2106 or Form 2106EZ. Use the former if you are deducting ordinary and necessary expenses for your job, and the latter if you are using the standard mileage rate for vehicle expenses and were not reimbursed for any expenses by your employer.