Can Lodging Be Used As a Tax Deduction?

A sour-star resort stay might not qualify as a necessary expense.

The simple answer to the question is, yes, lodging can be used as a tax deduction. The operative word here is "can." You must take the utmost care to insure that the particular nights of lodging in question fall within the guidelines set down by the Internal Revenue Service. Controlling language in the tax code refers to travel expenses that are an "ordinary and necessary" part of traveling away from home for the purpose of conducting a business or profession.

Tax Home

In general, the lodging expense you wish to claim as a tax deduction must have occurred outside your tax home, which is a term used by the IRS to describe the local area where you maintain an office or conduct your business or profession. This is where your business is located, not necessarily your home. If, for example, you routinely travel from your home to your place of business and stay there a few nights a week before returning to your family on weekends, lodging would not be deductible. Establishing your tax home is a critical concept when determining lodging deduction status.

Lodging Deduction

The lodging deduction is intended to reimburse a worker who is required to travel, at his own expense, a distance far enough from his tax home in order to conduct, pursue, or develop a business or profession. While the IRS provides a standard meal allowance for that expense, lodging deductions are limited to actual cost. Keep in mind that lavish or extravagant expenses are not allowed. The purpose is to see that you get enough rest to go about your business pursuits the following day.

Necessity

A critical element of determining whether or not the lodging fee is deductible comes down to determining its necessity. If the distance and demands of the day are such that you could easily return to your home at night, the deduction is not allowed. The IRS only considers it a necessary expense if the prospect of returning home at night would place too onerous a demand on your ability to rest properly.

Local Exceptions

After realizing that there were certain scenarios that could occur within a businessperson's local tax area that might necessitate an overnight stay, the statutes were modified slightly to incorporate some required business events that occur within a major metropolitan area. As residents of such areas know, you might live within close proximity to a required business meeting or training session, as the crow flies, but still encounter an hours long drive to get there, due to traffic congestion. If training activities run late and begin early the next morning, or an overnight stay is required by your employer, lodging could be considered a legitimate deduction.

References

• IRS: Business Topic 511 -- Travel Expenses
• Thompson: IRS Notice on Lodging Expenses -- Still More Questions Than Answers