How to Qualify for Tax Deductible Moving Expenses
Editor’s Note: In my 20s, I lived in multiple states. It was always very confusing when it came to determining tax deductible moving expenses. This guest contributor shares some great information on tax deductible moving expenses here. Read on!
Today’s generation of workers is more likely to relocate for work-related reasons than any previous generation. I’m a good example of this. In my professional career, I have lived and worked in three states and two countries, not counting the work-related travel to a couple dozen other countries – score one for military service!
Travel and relocating can lead to career growth and many exciting personal and professional experiences. But moving to a new location can also be very expensive.
Thankfully, the IRS allows you to deduct work-related moving expenses under certain conditions, with some restrictions. The cool thing is that you can deduct work-related moving expenses if you move to a new location and don’t even have a job lined up yet. You can find the details in IRS Publication 521, but let’s go through a quick rundown to see if this applies to you, and how you can claim your deductions.
Who Can Deduct Moving Expenses?
- The move must be closely related to the time and place of your new job. This means you must start working close to where you moved, and within a certain timeframe. But the rules are actually fairly flexible. The IRS has gone on the record stating that you can claim moving expenses if you start work within one year of the time you moved. So that gives you the ability to move to a new location even if you don’t have a job lined up yet.
- Did you move far enough away? Your new place of work must be at least 50 miles further from your old house than your previous job location was from your former home. In other words, take the distance from your old house to your old job, and add 50 miles. If your old job was 20 miles from your home, you need to move at least 70 miles away to satisfy the requirement. If this is your first job, or you are reentering the job market, you only need to move 50 miles to satisfy the requirement.
- The Time Test. This test states you must have had 39 weeks of full-time employment in the 12 months following your move. There are some exceptions to this rule. For example, if you move late in the year or start work several months after moving, you can meet this requirement if you expect to work 39 weeks of the following year. You can also meet this requirement if your employer transfers you at their request, you get laid off, become disabled and are unable to work, you work a seasonal job, and several other criteria. If you are self-employed, a different time test applies. Under the time test for self-employed persons you must work full time for at least 39 weeks during the first 12 months AND for a total of at least 78 weeks during the first 24 months after arriving in the general area of the new job location (the “78-week test”).
Note for Members of the Armed Forces: Military members moving for a Permanent Change of Station move do not need to meet the distance or time tests, as their move is required by the U.S. government. Your base Traffic and Management Office (TMO) can help you set up your move, and your base should have a tax service in the spring that can help you file your tax return.
Which Costs Can You Deduct?
- Travel Expenses: including hotels and lodging, airline tickets, fuel and road tolls. Food is not an allowable travel cost.
- Packing and Shipping Costs: this includes expenses such as boxes, tape, packing materials and moving and storage costs (while in transit). This even includes the cost of shipping household pets.
- Utilities: this includes connection and disconnection fees.
Non-Allowable Deductions: You are not allowed to deduct any expenses related to buying or selling your home (including a loss), charges for breaking your lease and expenses related to setting up your new household.
Employer Reimbursed Moving Expenses: If your employer reimbursed you for moving expenses, special rules will apply. If the reimbursements were not included in your Form W-2 wages, then you are not allowed to deduct any of those reimbursed expenses because you have already realized that tax benefit. On the other hand, any otherwise deductible moving expenses that your employer reimburses you for that are included in your taxable wages can be claimed as a deduction. Lastly, any nondeductible moving expenses paid by your employer are fully taxable to you and must be included in your wages subject to withholding.
How to Claim the Deduction: Fill out IRS Form 3903, and attach it to Form 1040 when you file your taxes.
More information: There is a lot more to these rules than we can cover in this page. Thankfully, the IRS has a great resource, IRS Pub 521.