Are Your Hotel Expenses Tax Deductible?

The Internal Revenue Service (IRS) allows for certain deductions of hotel expenses, but it is not a blanket rule. The ability to deduct these costs depends on the specific circumstances surrounding the travel and its purpose.

General Principles of Deductibility

For any expense, including hotel costs, to be deductible, the IRS generally requires it to be both “ordinary and necessary.” An ordinary expense is common and accepted in your trade or business. A necessary expense is helpful and appropriate for your trade or business.

Another fundamental rule is that expenses cannot be lavish or extravagant. The IRS considers an expense lavish or extravagant if it is significantly higher than what is considered reasonable under the circumstances. Personal expenses, by their nature, are typically not deductible unless specifically allowed by tax law.

Deductible Travel Expenses

Hotel expenses are deductible when travel is directly related to certain activities. These deductions typically apply when you are away from your tax home overnight for a temporary period. Your tax home is generally your main place of business or work.

Business Travel

For business travel, hotel expenses are often deductible when the primary purpose of the trip is business-related. This includes travel for work, a profession, or a job that requires you to be away from your tax home for longer than an ordinary workday and necessitates sleep or rest. Deductible costs include lodging, transportation, and other incidental expenses incurred during the business trip.

Medical Travel

Hotel stays for medical travel can be deductible under specific conditions. Lodging expenses, up to $50 per person per night, may be included if the travel is primarily for and essential to medical care. This care must be provided by a physician in a licensed hospital or equivalent facility, and there should be no significant element of personal pleasure or vacation involved in the travel. The total medical expenses, including lodging, are deductible only to the extent they exceed 7.5% of your adjusted gross income (AGI).

Education-Related Travel

In limited instances, education-related travel may include deductible lodging costs. If the education maintains or improves skills needed in your current trade or business, and requires you to travel away from home overnight, associated lodging expenses can be deductible. However, expenses that qualify you for a new trade or business, or travel that is itself a form of education (e.g., a language teacher traveling abroad to learn a language), are generally not deductible.

Rental Property

Travel, including lodging, to manage or maintain rental property can also be deductible. These expenses must be ordinary and necessary and incurred while traveling away from home primarily for the rental activity. This applies to activities such as dealing with tenants, overseeing repairs, or buying supplies for the property. If the trip also includes personal activities, the expenses must be properly allocated, and only the portion related to the rental business is deductible.

Qualified Charitable Organization

Lodging expenses incurred while performing services for a qualified charitable organization can be deductible as a charitable contribution. The travel must be necessary and solely for the purpose of performing services for the charity, with no significant element of personal pleasure or vacation. You cannot deduct the value of your time or services, but out-of-pocket costs like lodging are permissible if unreimbursed.

Other Limited Scenarios

Other limited scenarios include travel for job search purposes, though this is heavily restricted post-Tax Cuts and Jobs Act (TCJA). Similarly, moving expenses are generally no longer deductible for most taxpayers, with an exception primarily for members of the Armed Forces.

Recordkeeping and Substantiation

Accurate recordkeeping is essential for substantiating deductible hotel expenses. The IRS requires specific information to support a deduction, and insufficient records can lead to disallowance.

For each expense, record the amount, date, and location. Document the purpose (e.g., medical, educational, charitable). For business-related travel, the business relationship of the people involved, if applicable, should also be noted.

Required documentation includes receipts, canceled checks, and bills for lodging. For transportation, itineraries, and logs can be used, and for other expenses, a detailed record or diary is often needed. It is advisable to keep all supporting documents, such as hotel bills, airline tickets, and convention brochures. These records should be maintained for at least three years from the date you file the tax return on which the deductions are claimed.

Limitations on Deductible Hotel Expenses

Several limitations can impact the amount of hotel expenses that can be deducted. Understanding these rules is important to accurately calculate your deductions.

When a trip involves both personal and deductible activities, such as a business trip combined with a vacation, only the portion of the hotel stay directly attributable to the deductible purpose is allowable. You must allocate expenses between the personal and deductible components. For example, if you extend a business trip for personal reasons, only the lodging costs for the business days are deductible.

Taxpayers may choose to use per diem rates instead of actual expenses for lodging and meals, which can simplify recordkeeping. The IRS publishes these rates annually, with different amounts for high-cost and other localities. While using per diem rates can be convenient, it may not always result in the largest deduction if your actual expenses were higher. For the period beginning October 1, 2024, the high-low per diem rate for lodging, meals, and incidental expenses is $319 for high-cost localities and $225 for other areas.

The rule that expenses cannot be lavish or extravagant applies directly to hotel costs. While staying at a high-end hotel does not automatically make an expense lavish, a portion of the cost could be disallowed if it is deemed excessive compared to what is reasonable under the circumstances. This subjective standard requires careful judgment.

A significant change introduced by the Tax Cuts and Jobs Act (TCJA) of 2017 suspended the deduction for unreimbursed employee business expenses for federal tax purposes. This means that for tax years 2018 through 2025, most employees cannot deduct hotel expenses or other travel costs that are not reimbursed by their employer. This limitation does not typically apply to self-employed individuals, who continue to deduct ordinary and necessary business expenses on Schedule C.