What is a Tax Home?

A tax home is a taypayer's primary residence or place of business (if the taxpayer is an organization).

How Does a Tax Home Work?

Let's assume John lives in Montana during the summer and Arizona during the winter. He spends seven months a year in Arizona and five months a year in Montana. Because he spends most of his time in Arizona, Arizona is his tax home for tax purposes.

If John were, say, a salesperson with a territory that covered several states, and he spends most of his time on the road with no primary address and not much notice about where he's headed next, he may not have a tax home.

Why Does a Tax Home Matter?

Having a tax home is important for calculating tax obligations. Some federal income tax credits or deductions, for example, are available only to people who live in certain areas (often these programs are associated with disaster or financial relief). Tax homes also comes into play when calculating deductions for moving expenses, certain travel expenses, and similar items, because many tax rules require calculations that are based on distance from the taxpayer's tax home.

Accordingly, without declaring a tax home, a taxpayer cannot claim a travel expense deduction (the IRS deems these people 'transient'), among other things. It is worth noting, however, that the IRS generally limits travel expenses to 2% of gross income.

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Paul Tracy
Paul Tracy

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