concerned elderly couple in meeting

Locating the Tax Home for Retirees

Aug 1st 2018
Share this content

The tax law allows you to deduct travel expenses away from home, but where is your “home” for tax purposes?

Despite what many people think, it’s usually not the place where you live and sleep on a regular basis, although it might be. In a new case, Maki, TC Summary 2018-30, 6/6/18, the Tax Court addressed an interesting situation involving the tax home of a retiree.

Based on the prevailing regulations, the IRS typically says your tax home is the general area of your employment. But this determination isn’t always cut-and-dried.

For instance, suppose you work at multiple business locations and don’t have a single regular place of business. In this situation, the location of your tax home depends on several factors, including the time spent, the work performed and the income earned at each place. If you’re self-employed, your tax home may be the place where you live, but the IRS can still contest your assertion.

Normally, this issue doesn’t arise for a retiree who is living on a fixed income. Because there’s no place of employment, the retiree’s personal residence is usually his or her tax home. But things may change when a retiree explores business opportunities and travels to different locations.

Facts of the new case: The taxpayer and his spouse, both retired, resided in a suburb of Seattle. In 2014, their income consisted solely of Social Security benefits, interest, dividends, capital gains and pensions.

However, the taxpayer had inherited four parcels of timberland located further north in Washington, all within a 35-mile radius of each other. The parcels were situated approximately 70 to 80 miles from the taxpayer’s residence.

Although the taxpayer decided to manage and develop the timberland as a business, he remained in the same residence near Seattle. Thus, he regularly traveled to the parcels, often spending about three days at a time “planting, protecting, and maintaining trees on the timberland.”

On his 2014 return, the taxpayer claimed he was away from his tax home for 167 days and nights. His Schedule-C reflected travel expenses based on his use of the per diem rates in effect for 2014 plus additional expenses travel-related expenses.

This resulted in a huge tax loss effectively sheltering his retirement income from tax. However, the IRS disallowed his deduction of almost $57,000 for travel expenses.

Result: The Tax Court came down on the side of the taxpayer. It provided two main reasons:

1. The taxpayer spent more than half of his time at the residence in the Seattle suburb.

2. All of the income was earned at this home. This seemingly ignores the business opportunities for the timberland that the taxpayer was seeking in retirement. (Note: The IRS adjusted the deduction according to a recalculation of the per diem rates.)

Don’t accept this decision as a blanket approval for establishing the tax home of retirees. Each case is decided on its own merits. In fact, a similar situation may provide a different tax result.

Replies (2)

Please login or register to join the discussion.

Aug 2nd 2018 12:21 EDT

The facts seem rather straight forward.
Just as commuting to different business locations, I would have picked one parcel as the main location and then travel to the others. Maki was not traveling between different clients locations.
No different than commuting from one state to your employer's location in another state.

Thanks (1)
Replying to STEVEN NORTH:
By rjskal
Aug 2nd 2018 20:55 EDT

You'd think the IRS would have pushed for capitalizing the expenses. And then there's the profit motive aspect.

Thanks (1)