How Do I Maintain My Tax Home?
Establishing and maintaining your tax home might just be one of the biggest issues faced by travelers and those of us who work to assist them. It’s certainly the subject of many of the calls and emails that end up in our inbox. Luckily, the rules are pretty clear, so let’s dive in and break it all down for you. We promise, it’s not as intimidating as it looks! Check out this breakdown and the video below.
There are 3 requirements, and you MUST meet 2 out of 3 of them in order to qualify for tax-free stipends.
Have regular business (employment) in that area. Also, use that home for lodging while doing business in the area (a job).
Maintain a physical residence in your tax home (economic area where you last worked fully taxed).
If you choose to keep your tax home by maintaining a residence, you’ll need to have worked fully taxed in the area of your residence prior to traveling. If you own a home in your tax home area, make sure you are the one paying the mortgage/utilities.
In the event that you decide to rent your home out while you travel, ensure that you are not renting it out 100% of the time you are away. Another option is to pay rent or share expenses. Since rent is a for-profit situation, the person you’re renting from would need to claim it on their taxes as rental income. In addition, the residence would need to be rented at fair market value (a comparable price to similar residences for rent in the area), and there would need to be a rental agreement.
Shared expenses are more of an informal arrangement (e.g. roommates splitting the cost of an apartment). It is not considered rental income and is not reportable to the IRS.You have not abandoned your tax home (pattern of returning/spending a minimum of 30 days a year there).
You can meet this goal by earning roughly 25% of your yearly taxable income at this location. If someone works registry/prn at home, that 25% goal can be met fairly quickly since the local hourly rate is usually much higher than a traveler’s taxable rate (10-12 weeks may be enough). Another method would be to work one local contract every year at home, taking the higher taxable rate, or having the housing and meal per diems fully taxed. If you maintain your tax home through fully taxed work, no duplication of housing expenses (rent/shared expenses) is required. Also, while working there, you will have fulfilled the 30 day minimum requirement in your tax home per year. It is assumed you are living there if you are working there.
Note: Taking a permanent job shifts the tax home to that new location unless you have more income from another location.