A tax home is serious business for travelers. We want to save ourselves from any tax hassle down the road and while we have never had an issue, from the beginning we have done our best to maintain a solid tax home.

what is a tax home?

To keep it simple, a tax home is a location of permanent residence that is in a general economic area where you make significant income or have made significant income for some time. It isn’t always your permanent residence, but for most travelers it will be. It is also a place where you are maintaining a home/duplicating expenses while traveling, therefore allowing you to accept the tax free per diems.

Not our tax home, but our current home in Maine!

Do I have a tax home?

What’s harder than defining a tax home? Determining if you have a tax home! The easiest way to ensure you have a tax home is to show you are making significant income in a given location. According to IRS.gov, if you don’t have a regular or main place of business, then your tax home may be the place where you regularly live. Therefore it is important to establish this “regular place of living”. This is usually established through work/income. Once you have established a tax home, having expenses such as rent/mortgage allow you to show you are duplicating housing expenses while traveling. This allows you to claim the tax free per diems which account for such a high take home pay as a traveler. Outlined below is directly from IRS.gov titled Factors used to determine tax home. So as a traveler, when we don’t have a regular or main place of business, the following three factors help you determine if you have a tax home.

You perform part of your business in the area of your main home. This includes using that home for living while doing business in the area.
You have living expenses at your main home. This is where you are showing rent/mortgage therefore duplicating your living expenses while traveling when away from home.
You have not abandoned your tax home area. This can include returning home often for use. We will dive a little deeper on the subject of returning home to maintain your tax home below.

If you have two of the above, you likely qualify for a tax home, but should speak with a professional to make sure. If you satisfy ALL THREE of these factors, then you have a tax home per IRS guidelines. If you only satisfy one, the IRS considers you itinerant workers and you don’t have a tax home. Remember, the guidelines above help you determine if you have a tax home. If you don’t have a tax home and want to establish one, you need to make income in a given location.

new grads

If you are a new grad, I would clarify with a tax professional, but from our understanding, the IRS has a clarification that your tax home can be your “historical place of lodging” and where your claimed main home is located. Therefore if you have lived at your parents home all while growing up, moved away only for college, and continue to return home to visit family, including ties to community (example could include continuing to have same address on driver’s license, receive mail at that location) you may be able to use that as your tax home. Below is our example of how we transitioned into travel therapy, but as we didn’t begin right as new grads, make sure to ask a professional about your situation.

If you like examples (as I do) here is ours

Right out of grad school, Kari and I moved back to our hometown to live with my parents. Our first jobs as physical therapists were a short commute from their house. This lasted for 18 months and was more than enough to establish a tax home. Unfortunately, we didn’t fully grasp the concept of a tax home and began our first two assignments as itinerant workers.

Itinerant workers basically means our tax home is wherever we are currently living, therefore every job is fully taxed. While take home pay was less than what it could have been had we claimed a tax home, it was freeing to know that we had no restrictions on where or how long we were to be in a given location. There were no tax home demands to meet. After our first year of travel, having learned more regarding tax home status, we decided we would re-establish our tax home at my parents house and be able to claim those tax free per diems.

To do this, we took a fully taxed assignment for over 3 months and began paying “fair market value” rent. Through income, we were establishing our tax home. Once re-established, we went on our way.

what is “fair market value”?

Fair market value is our way of showing that we are paying an adequate amount for our tax home in case of an audit. This is important in our situation as we are renting a room from family and not an apartment or mortgage payment. We use craigslist to find rentals in our tax home location and average that price/month to base our tax home payment on. This shows what “fair market value” is for our place of living. If you are renting an apartment and your name is on the lease, this should be sufficient. Same would go for paying a mortgage on your own home.

I have a tax home, now how do i maintain it?

Once you have established a tax home you aren’t quite out of the woods yet. It is important to maintain your tax home.

“ [Maintaining a tax home] is best done by [returning home] 30 days per calendar year OR maintaining through work which means at least 25% of yearly taxable income on a cyclical, annual basis”

— Travel Tax

Using our IRS examples from above

Perform part of your business in the area of your main home
Living expenses at your main home
You have not abandoned your tax home

It is important to meet at least two of the three above to maintain your tax home, and all three pretty much guarantees your tax home is rock solid. If you see the quote from Travel Tax above, going home 30 days per year or earning at least 25% of your yearly taxable income will get the job done. Both of these ensures that you have not abandoned your tax home and/or are performing part of your business in the area of your main home. We continue to pay rent as well therefore having living expenses.

Our experience with travel therapy has proved that it takes some research and planning in regards to maintaining your tax home. For our first year of travel we were itinerant workers, but for our second year, we planned an assignment close enough to our tax home to visit on several long weekends. This allowed for some of the 30 days to be met. We then stopped by for a week prior to leaving on our next assignment. I worked PRN during that week, both for added income, as well as showing income at our tax home.

As the year was nearing its end, we hadn’t quite met the 30 days or 25% yearly taxable income and felt like we were running out of time. While Kari was working in Texas, I didn’t have an assignment and found this the perfect opporunity to fly to CA for 3 weeks, then later an additional 2 weeks and work PRN. Not our plan initially, but travel therapy isn’t always ideal. While a challenging experience, we did ensure our tax home was rock solid and off we went to Maine for what is estimated to be 9 months by the time we leave. As you can see, we easily met more than 6 weeks at our tax home, and worked PRN for most of that time.

Other simple ways to maintain your tax home would be to take an assignment fully taxed or take a couple weeks of vacation and visit your tax home. Each year may be different. Seeing as though we have been in Maine this long, we may be looking at a fully taxed assignment in the near future. The three months of income meets all of our needs to maintain our tax home as well as getting the chance to see family.

summing it up

If you have made it this far, hopefully we have answered the basics of having a tax home and set you on the right path. As you can see from our short stories of our adventures, it can take getting creative to maintain your tax home, but it is definitely doable. Also, if you don’t have any good options for a tax home or you hate the idea of having to return home every year, consider being an itinerant worker. While you make a little less, it still pays very well and you get to travel the US. Plus, you never have to worry about maintaining a tax home. It is truly freeing.

For additional questions, please feel free to reach out to us on our contact page or the comments section below and we will provide you with as much information as we can. Remember, WE ARE NOT TAX PROFESSIONALS, and if you have specific tax home questions, I would recommend visiting TravelTax here and contacting them. We are only offering this as an informative post and you should seek a professional for your specific needs. Travel Tax has been a big help for us, and continue to be a good resource as we travel. This is meant as a start up for education on tax homes, and I would not hesitate to visit Travel Tax and read their entire section after this blog post. It has helped us tremendously.

Kari getting her hike on in Maine at Tumbledown Mountain (Mt. Blue State Park)

What Is A Tax Home?