Tax break for temporary work assignment defunct

Q: I believe the new tax law is going to be very disruptive to plans I have for a temporary work assignment in Washington D.C., but my employer is uncertain if there is really a problem. I have a home in Placitas where I pay property taxes and mortgage payments. Last November, I agreed to a seven-month work assignment in D.C. beginning in May after the school year ends, and ending in December. My wife and children are coming with me, and this seemed like a great chance to make this an educational trip for the kids where they get to experience both the Capitol and the East Coast. My employer provided a booklet that described the tax consequences of the assignment, and it said that all housing and living expenses incurred in D.C. would be tax deductible because the assignment is temporary. The tax law allows this because it is not reasonable to expect an employee to

sell a permanent home, and the deduction offsets the dual living costs. I am now being told that the new tax law may not allow this any more. Why would the law disallow a wellreasoned deduction? Is this really in the new law?

A.What you describe has been in the law for a long time. It was often used by construction workers assigned to temporary job locations. I have also known CPAs who used this provision when assigned to a Washington “national” tax office for a temporary period.

A temporary job is defined to be 12 months or less. It was once openended, meaning it was subject to interpretation as to whether the job was temporary or permanent, but abuses led the Congress to specify that it had to be no longer than 12 months to qualify for the tax break.

Although not a commonly used benefit, with 130 million tax returns filed it shows up on quite a few returns every year. I have known several people in the Albuquerque area who have taken temporary work assignments.

The new tax law does not have a specific prohibition on deductions for temporary work assignments. In fact, the general provision survived the tax change. Nevertheless, you will lose your deductions.

What the law did was to eliminate any deductions that are classified as “miscellaneous itemized deductions.” The tax law defines these deductions as all itemized deductions other than those specified in Section 67(b).

Your travel expenses will be in your capacity as an employee. You first report those expenses on IRS Form 2106 and then as miscellaneous itemized deductions on schedule A. You lose the tax benefit because there are no allowed miscellaneous itemized deductions in 2018.

Technically the deduction for expenses associated with a temporary work assignment still exists. However, practically it exists only for someone who can report it as something other than a miscellaneous itemized deduction, which is a selfemployed person.

Even before 2018, the deduction was available only to the extent the aggregate miscellaneous itemized deductions exceeded 2 percent of the taxpayer’s adjusted gross income, and then only if the taxpayer itemized deductions.

I would expect that a 7-month work assignment in D.C. would create costs in excess of 2 percent of AGI. Your state income and property taxes and charitable deductions may allow you to itemize deductions. If not, the travel costs probably would create a tax benefit. But no longer.

Employers may need

to pick up the slack and pay for all or a portion of an employee’s temporary living and travel costs. You would need to make an adequate accounting to the employer to avoid more W-2 wages for any reimbursement.

Your tax treatment of temporary work assignment costs has definitely been disrupted. You will have to decide what that means in your decision-making process. A conversation with your employer is probably a good idea.

You are not the only one adversely affected by the elimination of miscellaneous itemized deductions. The law did not target any deduction in particular. In addition, it did not, in general, eliminate the deduction for temporary work assignments.

The problem is that where these temporary work deductions appear on the tax return eliminates the deduction for an employee on a temporary assignment.