by Tom Andrews, CPA
It is not uncommon for luxury yacht crewmembers to stay in crew houses while traveling. Sometimes these stays are mandated by the owner or the crewmember is in between jobs and needs temporary housing until the next job begins. Many crewmembers mistakenly believe that the crew house is tax deductible regardless of the circumstances. Ultimately the deductibility of the crew home will be determined on a case by case basis and the most important factor is whether or not he crewmember has traveling away from their “tax home”.
Generally speaking travel expenses are only deductible when crewmembers travel away from their “tax home” to conduct trade or business. The “tax home” is an individual’s regular place of business, regardless of where the taxpayers business is located. If there is more than one regular place of business, the tax home is the main place of business, the tax home may be the place where the taxpayer regularly lives.
Taxpayers who do not have a regular place of business and who maintain no fixed home are considered itinerants. Their tax home is wherever they work. Thus, they cannot deduct travel expenses away from home. For example if you are a crewmember and normally live with your parents rent free when not traveling on the yacht, your travel expense might not be deductible because your tax home becomes the yacht and since you are not traveling away from your “tax home” your expenses are not considered deductible. If however you are maintaining a home along with the expenses of maintaining that home the duplicative housing or travel expenses you incur might be deductible.
The “tax home” does not change when taxpayers are on a temporary assignment or job away from their main place of work. However, if the taxpayer is indefinitely assigned to a location other than the main work place, the location of the assignment becomes the new tax home. Then, taxpayers cannot deduct travel expenses between their main residence and work place. Taxpayers in this situation must include any amounts received from their employer for living expenses in income. This rule applies even if the amount is called a travel allowance and the employee accounts to the employer for it. Whether an assignment is temporary or indefinite must be determined when the work begins. If the taxpayer reasonably expects an assignment or job to last for one year or less it is temporary unless there are facts and circumstances that indicate otherwise.
If you are a crewmember that is not incurring duplicative living expenses chances are the deductibility of your crew home will be denied. It is also important for the crewmember to understand whether they are being classified as an employee or a contractor, this determination will affect how potential travel expenses will be expensed on the personal tax return.