Tax Home: What It Means for the IRS and Why It Matters Cross-Border

The IRS “tax home” is not where you live. It is where your regular or principal place of business is located, under IRC 911(d)(3) and Rev. Rul. 75-432. If you have no regular place of business, the IRS looks at where you regularly live. The distinction matters because the tax home drives three separate cross-border rules: the FEIE qualification (your tax home must be in a foreign country), the closer connection exception (you must maintain a tax home in a foreign country), and the deductibility of travel expenses under IRC 162(a)(2) (you can deduct travel expenses when away from your tax home).

How does the IRS define the tax home?

The IRS uses a three-factor test, developed through case law and formalized in Rev. Rul. 73-529 and Publication 54:

• Factor 1: Regular or principal place of business. If you have one, that is your tax home. It does not matter where you maintain your family residence. A construction worker who lives in Calgary but works on a 6-month project in Houston has a tax home in Houston for that period (unless the Houston assignment is “temporary,” which has its own definition).
• Factor 2: If you have no regular place of business, the IRS looks at where you regularly live (your “regular place of abode in a real and substantial sense”). This is the rule that applies to retirees, people between jobs, and individuals whose work does not have a fixed location.
• Factor 3: If you have neither a regular place of business nor a regular place of abode, you are an “itinerant” and your tax home is wherever you happen to be working. Itinerants cannot deduct travel expenses because they are never “away from home.”
• The critical point for cross-border situations: if you work in Canada, your tax home is in Canada, even if you are a US citizen who keeps a home in the US. This is what makes the FEIE work. And if you are a retired Canadian snowbird with no place of business, your tax home is wherever you regularly live, which is Canada for most of the year.

Why does it matter for the FEIE?

To qualify for the foreign earned income exclusion, your tax home must be in a foreign country during the period you are claiming the exclusion (IRC 911(d)(1)). This is an independent requirement, separate from the bona fide residence test or the physical presence test. You can meet the 330-day physical presence test but still fail the FEIE if your tax home is in the US.

• The scenario where this matters: a US citizen who works remotely from Canada for a US employer, but whose “regular place of business” is the US office they occasionally visit. If the IRS determines the tax home is the US office (because that is where the principal place of business is), the FEIE fails even though the person physically resides in Canada. The fix is usually showing that the Canadian location is the regular place of work (the person works from Canada full-time, visits the US office only occasionally, and the employer treats the Canadian location as the primary worksite).
• For Americans who move to Canada and work in Canada, the tax home is straightforward: it is wherever they work in Canada. The FEIE tax-home requirement is met automatically.

Why does it matter for the closer connection exception?

The closer connection exception under IRC 7701(b)(3)(B) requires that you maintained a “tax home” in a foreign country during the entire current year. For Canadian snowbirds, this means the tax home must be in Canada for the full calendar year. If the snowbird is retired (no place of business), the tax home is where they regularly live, which is their Canadian home.

• The exception breaks if the snowbird sells the Canadian home and does not have another regular place of abode in Canada. At that point, the “tax home” may shift to wherever they are staying in the US (their Florida condo, for example), and the closer connection exception fails because the tax home is no longer in a foreign country.
• This is also why the closer connection exception requires the foreign tax home for the “entire” year. A Canadian who sells the Canadian home in September and keeps the Florida condo does not have a foreign tax home for the full year, even if the closer connection factors still favor Canada. The treaty tiebreaker (Article IV) does not have this all-year requirement, which is why it is the fallback when the closer connection exception fails.

Why does it matter for travel deductions?

Under IRC 162(a)(2), you can deduct travel expenses (transportation, lodging, meals) when you are “away from home” on business. “Home” means your tax home, not your family residence. If your tax home is Toronto and you travel to New York for a business meeting, the New York expenses are deductible. If your tax home is Toronto and you fly to Florida to visit your family for a weekend, the Florida trip is personal, not business travel.

• For cross-border workers, the tax home determines which country’s trips are deductible and which are personal. A Canadian who commutes weekly to a US work site has a tax home at the US work site (if that is the regular place of business), and the weekly trips to Canada are personal commuting, not deductible travel. This is counterintuitive but is the consistent IRS position.
• The “temporary vs. indefinite” distinction matters here. If a work assignment is expected to last one year or less, the assignment location is “temporary” and the original location remains the tax home. Travel expenses to the temporary location are deductible. If the assignment is expected to last more than one year, the new location becomes the tax home, and travel back to the original location is personal.

What if I work in two countries?

If you work regularly in both the US and Canada, the IRS determines your tax home by looking at which location is the “principal” place of business. Factors include the total time spent working in each location, the degree of business activity in each, and which location generates more income. If the split is roughly equal, the IRS may look at where your regular place of abode is as a tiebreaker.

• For a Canadian consultant who spends 60% of the time working in Canada and 40% in the US, the tax home is likely Canada (where the majority of work occurs). US travel expenses may be deductible on the US return to the extent they relate to the US business activity.
• For cross-border commuters (the Windsor-Detroit corridor, for example), the analysis depends on where the regular or principal place of business is. If a Canadian crosses the border daily to work in Detroit, the tax home is Detroit (the regular place of business), and the daily commute is not deductible. Canadian tax residency is determined separately under CRA rules.

Can I have a tax home that is different from my residence?

Yes, and this is common. The IRS tax home and your personal residence are two different concepts. A US citizen who lives in a Toronto suburb but works at an office in downtown Toronto has a tax home at the downtown office. A US citizen who lives in Toronto but works on a rotation in Alberta oil fields may have a tax home in Alberta during the rotation.

• The gap between tax home and personal residence is also what creates the “travel expense” deduction: you can only deduct travel expenses when you are away from your tax home, so if your tax home and your residence are the same place, there is nothing to deduct for trips to work. The deduction exists precisely because some taxpayers have a tax home (principal place of business) that is different from where they live.

What should I do next?

If you are a US citizen or green card holder with cross-border ties, identifying your tax home is the first step in determining your FEIE eligibility, your closer connection exception filing, and your travel expense deductions. The tax home is usually obvious (where you work full-time), but the analysis gets complicated with remote work, split-country employment, or retirement.

• The bona fide residence test
• Physical presence test: the 330-day rule
• FEIE vs foreign tax credit for Canada
• The closer connection exception
• Substantial presence test formula
• Cross-border commuters: Windsor-Detroit

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.