Lodging Expenses: What They are, How They Work

What Are Lodging Expenses?

Lodging expenses are the costs for an overnight stay, usually in a hotel, that may be deducted from federal income tax if the Internal Revenue Service’s criteria are met. These expenses are incurred when someone must travel away from their tax home for business. There is no set amount for deductible lodging expenses, but certain criteria must be satisfied for the expense to qualify for a tax deduction.

Understanding Lodging Expenses

Individuals can deduct lodging expenses from their income if they are incurred as moving expenses, as long as the expenses are reasonable for the circumstances of the move. However, any lodging expenses that are not on the shortest route from the taxpayer’s old home to their new home, such as detours for sightseeing, are not tax-deductible as moving expenses.

Due to the Tax Cuts and Jobs Act of 2017, moving expenses are only deductible for active members of the U.S. armed forces who are moving due to a permanent change of station. Lodging expenses for other Americans are not deductible for the 2018 through 2025 tax years.

What Qualifies as Lodging Expenses

To qualify for a deduction, lodging expenses must be incurred by an individual who is traveling away from their residence for their trade or business. The overnight stay must be necessary, and the cost of local lodging can only be deducted if certain stipulations are met. Under the safe harbor rules for local lodging deductions, the lodging must be necessary for the business owner to participate in a meeting, conference, or other business activity. The lodging must also be modest and not provide recreational benefits to the individual.

Alternatively, the facts and circumstances test can be applied instead of the safe harbor rules. Under this test, an employer must require an employee to take overnight lodging as part of their job, but the lodging must not be extravagant or primarily benefit the individual.

For example, if an employer requires their workers to stay at a nearby hotel for a training program, the cost of local lodging would meet the deduction requirements.