The Court of Appeals for the Third Circuit recently affirmed the Tax Court and held that an independent building contractor/property renovator could not claim deductions for transportation and other auto-related expenses involving travel between his residence and various worksites because the expenses were nondeductible commuting costs.
Costs of commuting between a taxpayer’s residence and place of business are generally nondeductible personal expenses. However, there are three exceptions to this general rule:
- Transportation between the taxpayer’s residence and a temporary work location outside the metropolitan area where the taxpayer lives and normally works is deductible (temporary distant workplace exception);
- If the taxpayer has one or more “regular work locations away from the taxpayer’s residence,” transportation between the taxpayer’s residence and a temporary work location is deductible (regular work location exception); and
- Transportation between the taxpayer’s residence (if the residence serves as the taxpayer’s principal place of business) and work location is deductible (home office exception).
In this case the Court of Appeals rejected the taxpayer’s arguments that the expenses were deductible under all three of the exceptions listed above:
- The temporary distant worksite exception was unavailable because the worksites at issue, although away from the taxpayer’s home, were within the normal distance/areas where he normally worked.
- The regular work location exception was also unavailable, since the only locations at which he worked during the years at issue were temporary worksites, and he showed no other regular work locations.
- The Court denied the expenses under the home office exception for lack of proof that he actually used an office in his residence exclusively for business.
Taxpayers frequently misinterpret the classification of a “temporary work location,” believing that as long as a work location or assignment is temporary, transportation and other travel related expenses are deductible.
The Tax Court discussion explained that for one of the two temporary location exceptions to apply, the taxpayer must be at a temporary location that is either:
- Away from the metropolitan location where he normally lives and works (temporary distant worksite exception), or
- Away from his regular or main job (regular work location exception).
The rules regarding the deductibility of travel expenses can be confusing. If you would like to discuss the deductibilty of travel expenses that you may incur, do not hesitate to contact a member of the Schneider Downs tax department.
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