Considering Travel

laughoutloud8 · Mar 26, 2016

Nope, no misunderstanding. If you rent your entire home out, you have abandoned it and have no tax home. It is no longer your residence.

I get what the poster Bottomed out, was referring to. The OP pays 15,600 a year for his mortgage. If the OP has only travelers staying for 9 months thats 16,200 at 1800 per month. The other 3 months he could take a local assignment. Doing so will not change his tax home at all.

NedRN · Mar 26, 2016

Sorry, you are wrong. There is a one time provision in the tax code for a temp vacation rental of your home but that is not suitable for long term travelers. One or two assignments and then home for good, OK. Otherwise it needs to be a house share to pass muster in a serious audit. Renting your home makes it a commercial property and no longer under your control, and no longer your residence. No residence, no tax home, no tax free stipends.

Being able to rent a home for $1,800 a month for less than a year is also a pipe dream in most areas. My modest home in the Midwest has a rental value of about $900 a month, and that is only because I live in a housing bubble in a desirable small town with great schools. 8 miles away in any direction, my house would only be worth around $600 a month. You would also have to pay someone to look after it (professional managers run about 10% of rent), deal with repairs, and take abnormal wear from renters versus home owners. Furnished homes are also less valuable in most markets (although travelers love them!). You also have to deal with protecting your personal belongings, perhaps renting a storage and moving them every time you return home.

You know, travelers do this either in ignorance, complicity from recruiters "just use your parent's address and we can give you the tax-free money", or complete tax evasion (really bad news if the IRS can prove it). The truth is that most get away with it. But the risk is not worth the reward. If you are audited for any reason, you will take a huge hit. If you have been doing this for several years, you could be hit with back taxes, interest, and penalties approaching 6 figures. That is a life changing event for sure to suddenly be a hundred grand in debt to the IRS. Chances are you "forgot" to declare the rental income as well.

laughoutloud8 · Mar 26, 2016

Are you an accountant? Do you work for the IRS? Both are probably no. OP consult with someone in that field.

NedRN · Mar 26, 2016

Are you an accountant? Do you work for the IRS? Both are probably no. OP consult with someone in that field.

I agree with your last sentence almost completely (more about that below).

As to my qualifications, you are right, I have none. Nor does anyone else on that forum.

I will say that I'm about as close as you can get to an expert on the subject of traveler taxation. I serve on the board of a non-profit traveler's association (PanTravelers) with Joseph Smith, a personal friend I've known for 15 years. Also known as TravelTax, Joseph is perhaps the countries leading expert on taxes in the travel industry, advising agencies and travelers alike on the relevant IRS regulations. He also serves as chief tax advisor to NATHO, the travel agency association, and is swinging all agencies into compliance with the laws.

I have also written a number of articles on traveler taxes and as such I have spent a lot of time studying source documents, much more than someone who gets his knowledge off of Facebook. I also know the agency side of things from the inside. I am completely on the same page with Joseph about all the facts. TravelTax maintains a very extensive website for travelers (not just nurses - he was once an allied traveler while in school) where every statement I've made can be verified by the leading expert.

Travel is a specialized field. While I agree that expert help should be sought in making a decision about how to manage your property before you begin travel, your local tax guy is not an expert in travel taxation. So I would recommend consulting with an expert such as TravelTax. He is not the only game in town and PanTravelers maintains a list of tax preparers that are expert in this field. Most of them will give you a phone consult for free. Part of the tax problems that travelers have is relying on their recruiter to know (they don't), and even if they go to the CPA who does their taxes, they are also very likely to get the wrong info.

But this isn't even close. I often refer difficult questions about shifting tax homes, or multiple residences or countries to TravelTax, the questions posed here are simple. If you think about why tax rules are the way they are, it becomes simple and logical. You have to have duplicated expenses (to deduct business costs or receive stipends - which are technically reimbursements which is why they are not taxed), and have to legitimately working away from your tax home on a short term assignment (plus a few other details). If you have rented your home, you have no duplicated expenses, and have abandoned your tax home (no residence). Pretty darned simple. You can't just own property, not live there, and call it a tax home. You can, but big trouble at the audit when the IRS says it is not.

Argo · Mar 27, 2016

Life would be easier of ned was wrong, he is not though. I have had a few travelers try to tell me that it's OK to use an old address or parents address as a tax home base. Then they argue about it when I tell them it's against tax code to do so. Usually it can be cleared up by actually reading the tax code.

CAN you fudge and lie and get away with it? Yeah probably.

CAN you get caught and fined by the irs for doing it? Definitely.

The real question is if it is worth it to you.... it is not worth it to me to risk myself or my families financial situation to lie about a tax home.

People that are ignorant about these things and don't actually research what some other traveler told them or some recruiter told them are usually the ones doing it and arguing that it's ok... it's not OK. Maybe take the time to research or read the tax code that pertains to you.