The Internal Revenue Service allows you to claim a deduction for your temporary housing expenses only when your move to another state relates to your business or employment. Commonly, employers require their employees to temporarily relocate to complete a specific assignment. In this case, the deduction is only available to the extent your employer doesn’t reimburse you for the costs.
Eligible Temporary Assignments
The IRS has specific requirements you must satisfy before claiming a deduction for your housing. Under no circumstances will the IRS allow a deduction for your temporary housing if your out-of-state move is a permanent one. To qualify, your work assignment must be in a location that is far enough from your home that commuting back and forth each day would be impractical or impossible. In addition, the work assignment must be temporary and not be expected to last for more than one year. Expenses are still deductible even if the assignment ends up lasting longer than one year as long as you did not expect it to last that long at the outset.
As long as your intent is to return to your permanent home after the assignment, you can deduct your costs for staying in a hotel or for the rent payments you make on a temporary apartment. However, these costs must be reasonable in amount. There is no specific amount that the IRS will treat as unreasonable; rather, luxurious hotels and apartments that are well above the average costs in the area are likely to be disallowed as a deduction. In order to claim a deduction for your temporary housing costs, you must report them as miscellaneous expenses on your itemized deductions. Your total miscellaneous expenses for the year are deductible to the extent it exceeds 2 percent of your adjusted gross income.
If you qualify to deduct your housing expenses, then there are other deductions you may qualify for that relate to your temporary relocation. These include the transportation costs you incur to arrive at and depart from the new location, dry cleaning and laundry services and the expense of shipping some personal items that you need during the year. If it is necessary to rent a car in your new location, you can deduct a portion of the rental fees, gas and oil when using it for work purposes. To claim any of these expenses, as well as your housing expense, you must prepare an IRS Form 2106 and attach it to your personal income tax return.
Taxpayers who are self-employed may also find themselves leaving their home temporarily to serve a client or customer in another state. You are allowed to deduct all expenses that an employee can; however, your deduction is not subject to the same 2-percent adjusted gross income limitation. If you are a sole proprietor, you must include these business expenses on the Schedule C attachment to your personal tax return.