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Christopher Phelps
Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2710
Experience:  CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
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Tax deductions

Customer Question

If I have primary residence in another state but work in another state...will I be able to deduct my rent in state number 2 if I am employed by a company(W2) vs as a consultant (1099)?
Submitted: 11 years ago.
Category: Tax
Expert:  Christopher Phelps replied 11 years ago.

You need to meet three essential prerequisites to be able to deduct these "rent expenses".   These prerequisites are that they be incurred while "away from home," that they take place by reason of the pursuit of a trade or business, and that the expenses be necessary and reasonable in amount. 


The most litigated aspect of these tests is the "away from home"component.  Congress weighed in at this point and statutorily determined that if at the beginning (or at any point later) the assignment is deemed to last for more then one year, then your tax home will be deemed at your work location rather then your principal residence.  Thus, expenses incurred in maintaining yourself near your work location become non-deductible unless allowed by law (i.e. you buy a second residence and deduct prop taxes and mort. interest).


I assume your expenses will be necessary to conduct your trade or business.  The reasonableness issue can be handled by reviewing the IRS per diem guidelines for lodging in your area (See Pub. 1542 at www.irs.gov).


Thus, if you expect your consulting contract to last less then one year I believe you would meet the away from home test and thus pass the first prong to deducting the rent expenses (as well as food ,etc.).  Assuming the rent is necessary so you can conduct your trade or business, the only other test is reasonableness of amount.  Take the daily lodging amount from the per diem guidelines, multiply by 30 to get a monthly amount and compare toyour rent.


Let me know if you have any other questions.

       
Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2710
Experience: CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
Christopher Phelps and 3 other Tax Specialists are ready to help you
Customer: replied 11 years ago.
Reply to Christopher Phelps's Post: Thank you you for the clear, simple ecplaination.
Customer: replied 11 years ago.
I mean to type explaination not 'ecplaination'...not wearing my current Rx glasses.

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