Spend a moment examining the following four short paragraphs that contain the basic facts from the Andrews case.1

For six months of the year, from May through October, Edward Andrews lived in Lynnfield, Massachusetts, where he owned and operated Andrews Gunite Co., Inc., a successful pool construction business.

During the other six months, Mr. Andrews lived in Lighthouse Point, Florida, where he owned and operated a sole proprietorship engaged in successful horse racing and breeding operations. In addition, he, his brother, and his son owned a successful Florida-based pool construction corporation from which Mr. Andrews took no salary, but where he did assist in its operations.

Instead of renting hotel rooms while in Florida, Mr. Andrews purchased a home, claimed 100 percent business use of the Florida home, and depreciated the house and furniture as business expenses on his Schedule C for his horse racing and breeding business.

Mr. Andrews then allocated his other travel expenses and the costs of owning and operating this house in Florida on his individual income tax return as

personal deductions on his Schedule A for a portion of the mortgage interest and taxes,

business deductions on his Schedule C for the horse racing and breeding business, and

employee business expenses on IRS Form 2106 for the pool construction business. (Tax reform under the Tax Cuts and Jobs Act eliminates personal deductions for employee business expense deductions for tax years 2018 through 2025—so Mr. Andrews should change his strategy and have his corporation reimburse him for his employee business. See Tax Reform Punishes W-2 Employees—Get Even! for more on what to do about this ugly development.)

Answer These Questions

Now that you’ve had a chance to examine the facts of the case described above, answer these four questions:

Did the law allow Mr. Andrews to deduct all his costs of living in Florida for six months of the year?

Since Mr. Andrews lived six months in Massachusetts and six months in Florida, where was his “tax home”?

Did Mr. Andrews have two tax homes, meaning that he was not permitted to deduct either home?

If he had two tax homes, one in Massachusetts and one in Florida, how much of his travel was deductible?

What the Courts Had to Say

The first court, the Tax Court, ruled that Mr. Andrews had two tax homes and his travel was not deductible.2

Wrong, ruled the second court—the higher court. Mr. Andrews appealed this wrong decision to the First Circuit Court of Appeals, where he got satisfaction and set the record straight. The appeals court3 ... Log in to view full article.