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 taken as a federal income tax deduction if the Internal Revenue Service's criteria are met. Lodging expenses are usually a business expense that is incurred when someone must travel away from their tax home to do business. The IRS does not set a standard amount that can be deducted for lodging expenses, however, several criteria must be met for the expense to be tax-deductible.

Understanding Lodging Expenses

The IRS also allows individuals to deduct lodging expenses from their income when the lodging expenses are incurred as a moving expense. The IRS says the expenses must be reasonable for the circumstances of the move. Any lodging expenses that are not on the shortest route from the taxpayer's old home to his new home—for example, because he decided to take a detour for sightseeing—would not be tax-deductible because these are not really 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

In order for the costs of lodging to meet IRS requirements for a deduction, the individual must be traveling away from their residence for their trade or business. There must be a necessity for the overnight stay and the cost of local lodging can only be deducted if certain stipulations are met. Among the criteria under the safe harbor rules for local lodging, deductions are that the lodging must be necessary for the business owner to participate in a meeting, conference, or other business activity. The site selection for local lodging can also affect its standing as a deduction; the room or housing may not be lavish nor offer recreational benefit to the individual.

A different set of criteria, called the facts and circumstances test, may be applied instead of the safe harbor rules on local lodging. In order for the expense to pass the test, an employer must require an employee to take overnight lodging as part of their job. However, the lodging may not be extravagant, or primarily give the individual some sort of benefit.

For example, if an employer requires their workers to stay at a hotel near their place of business in order to run a training program, the cost of local lodging would meet the deduction requirements.