As a general guideline, the IRS requires you to report as taxable income any money you receive to obtain temporary housing or the rental value of housing someone provides you. However, there are exceptions to this rule, such as when your move is a requirement of your job and your employer pays for your temporary housing.
On-Site Temporary Housing
When your employer requires you to live in housing on its premises, even if it's only temporary, the IRS allows you to exclude the value of this housing from your taxable income if certain conditions are met. In addition to the location of the housing being on the employer’s property, the employer must have a business purpose for requiring you to live there — it's not acceptable if it's merely for your own convenience. Rather, your employer must require it as a condition of your employment. You should be aware that if you accept a cash payment for a housing allowance instead of living on-site, the income tax exclusion isn't available. However, you may qualify to claim a deduction for the temporary housing expenses you incur.
Deductible Temporary Housing
In the event your employer requires you to relocate away from your home area and it’s necessary for you to obtain housing in the new area because the distance from your home is too far to commute on a daily basis, you must include any temporary housing allowance you receive in your taxable income. However, if at the outset both you and your employer don’t expect the job to last for more than one year, you can deduct all of your temporary housing expenses on your tax return to reduce the taxable amount of your allowance. You can include the cost of your rent or hotel bill while you're away from your home, monthly utilities, telephone service and most other reasonable expenses that you incur as a result of the temporary relocation.
A special exception to the general rule that temporary housing allowances are taxable applies to members of the clergy. If you're a clergy member, you can exclude all housing allowances the religious organization provides to you when it relates to the clergy services that you provide. This exception is applicable regardless of whether the housing is temporary or permanent. If the religious organization allows you to live in a home it owns, you can also exclude the value of the rent, as well as any housing expenses your employer directly pays for.
Members of the Military
As a member of the military, the federal government provides another tax-saving opportunity by allowing you to exclude from taxable income all amounts you receive for temporary housing. This includes the basic allowances for subsistence and housing and the cost of living allowances the government provides you with when your duty requires you to temporarily live abroad. Additional expenses that the exclusion covers include all reimbursements or allowances you receive from the government to cover the moving expenses you incur for a temporary assignment.