How Much Rent Do I Need to Pay Towards My Tax Home?
FAQs to Tax Home $$ questions!
If you are a traveler in healthcare who is getting a TAX FREE part of your pay, you have to follow specific rules. If you don't follow those rules, well, you should have your whole entire paychecks taxed.
(Nurses and Therapists and Radiologists I am speaking to you!)
We do not get tax free reimbursements just because we are the free spirits of the world. (Although how I wish that were the case!)
One of the reasons we could get tax free money is because we are duplicating expenses. This is not a stand-alone rule: Check out some of the other rules here!
This rule for travelers states: We must duplicate our expenses at a fair market value to qualify for the tax-free money. The government is reimbursing us with money that is un-taxed because they are helping us offset the costs of traveling for a job and having TWO homes that we are paying for. They are not reimbursing us if we only have one rent to pay.
Duplicate expenses? Fair Market Value? How much?
Do I need an electric bill in my name? Can I rent it while I am away?
Great questions. Let's break it down!
There is no set amount of money that you need to pay so it can seem subjective. But here are some ground rules for determining what qualifies:
1. The easiest way to prove you're duplicating expenses is to legitimately rent an apartment from a landlord who is not a friend or relative. Boom.
2. Own a home or pay a mortgage on a house.
3. Pay rent to a friend or relative. And this is where the waters get dicier. You can't just send your mom $50 every month and claim that as your tax home. If you're calling it rent, then it needs to "look, feel, and smell like rent" and be priced at a fair market value. To determine what that is, go to the classifieds or Craigslist and find the average cost of a rental in your tax home. It helps if you save screenshots or printouts as proof (in the unfortunate circumstance that you get audited).
That doesn't mean that you can't send your mom money every month and call it your tax home, that could be fine! (As long as you are following the other rules also- read on to other blogs to learn more!) Make sure you're paying them the same amount as a stranger would have to pay to live there. No "special family discounts" allowed!
It's also a good idea to have a lease; it's always helpful to have proof in writing. And make sure you pay in a form that can be tracked, such as an online money transfer or a check, not cash! It also helps if your name is on a utility bill, but that's not required, it just gives you more proof if you're audited.
The other side of this is: if you are paying your mother rent every month then she should report that on her taxes as renters income. Of course, you can't always control what the other party does, but that's the suggested approach.
"Can I pay a utility bill somewhere and claim that as my expenses"?
That answer to that is NO. You must pay a fair-market rent, and a utility bill doesn't count as this.
"At what point do I need to start paying rent at my mom's house before I travel?"
Unfortunately, there isn't a cut-and-dry answer for this one. The sooner, the better would be our response. As soon as you decide that you want to be a traveling worker, start paying rent.
And don't forget! Once you start paying rent, you can't stop. Even if you decide to take a break in between assignments to travel (Because that's one of the best perks of our job!), you need to continue to pay the rent while you're gone.
Now if your mom and dad happen to be super awesome, they might just give you a BIG OL cash value birthday gift, and you could end up with a big chunk of that back. The IRS wants to get their $$ in taxes. What happens with leftover cash after that they don't care as much about.
So if you pay your parents fair rent and your parents claim it as rental income on their taxes and give you back a chunk of the leftovers. Well, there is nothing wrong with that my friends!
What if I own my own home and my house is paid off?
Congrats! That counts. If you own your home, you have expenses and taxes to pay for it, and you don't need to worry about rental amounts.
Can I rent my house out while I am gone?
Yes! It's a GREAT idea to do this. But you must:
1. Keep part of the house for you that you can come back to (keep a room that no one is renting out).
2. Don't rent it out for the full year
3. As travelers, we have to go home sometimes and not abandon our homes (That is a separate rule). So make sure you do go back and stay at your house for around 30 days a year.
Laura & the Nomadicare Team xo
Companies and Travelers: Do not use this as your tax or legal advice.
This is a starting point. I am not a tax advisor. This is a chance for you to think deeper about tax homes and then get your own real tax advice from an expert.
Where you can go if you want legal tax advice:
Let them know I sent you - they give you a free 15-minute call and take good care of you.
There is also an amazing FAQ page on that website with lots of details on it for situations that might be true for you.
See the whole Webinar here!
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