Moving can be a huge headache with plenty of logistical details that must be addressed: packing, hiring a mover, disconnecting and connecting utilities, temporary storage for your things, lodging expenses for you and your family, and this list goes on. Despite the challenges associated with relocating, there may be a bright spot for you. Some or many of your moving expenses may be deductible, reducing your tax liability for the year.
The IRS first defines your home as meaning your main residence. It can be a house, condo, apartment, trailer, houseboat, or any other dwelling, but it cannot include secondary homes you may own such as a beach house.
In order to deduct moving expenses, you must meet three requirements: timing of your move (e.g. closely related to the start of work), the distance test, and the time test.
By closely related in time, the IRS states that your moving expenses must be incurred “within one year from the date you first reported to work at the new location…. It is notnecessary that you arrange to work before moving to a new location as long as you actually go to work in that location.” If you do not move within the one-year time frame, you may still be able to deduct moving expenses; however, you must show that there were extenuating circumstances that prevented you from meeting this requirement.
Next you have to pass the distance test. Your new home must be at least 50 miles farther from your former/existing home than your previous job was from your former home. As an example: If you commuted three miles to work previously, the commute to your new job location from your existing/former home must be 53 miles or greater. If that distance is shorter, you may not deduct moving expenses. If you are taking a first job or are returning to work full time, your place of employment must be at least 50 miles from your former home to meet the distance test.
Finally, you have to pass the time test. After your move, you must work full time at your new job for 39 weeks in the first year (consecutive 12 months). If you are self-employed, the time test extends to 78 weeks of full-time work during the first two years in your new location (39 weeks during the first 12 months and at least 78 weeks during the first 24 months). The IRS lists four rules regarding the time test for full-time employees:
- You count only your full-time work as an employee, not any work you do as a self-employed person.
- You do not have to work for the same employer for all 39 weeks.
- You do not have to work 39 weeks in a row.
- You must work full time within the same general commuting area for all 39 weeks.
If you are self-employed, the following three rules apply:
- You count any full-time work you do either as an employee or as a self-employed person.
- You do not have to work for the same employer or be self-employed in the same trade or business for the 78 weeks.
- You must work within the same general commuting area for all 78 weeks.
You can deduct moving expenses in the year in which you incur them as long as you expect to meet the time test within the following year (or two years if self-employed). If you ultimately fail to meet the time test after taking the deductions, you must then report the deductions as income in the year in which you fail the time test or file an amended return.
Expenses You Can Deduct
Once you meet the three requirements, there are a number of deductions you can take. First, you can deduct the cost of travel and lodging expenses for yourself and your family during the move from your old home to your new one. You cannot, however, deduct the cost of meals during your transit. If traveling by car, you can deduct actual expenses (with receipts) or take the standard mileage deduction.
You may also deduct the cost of packing, packing materials, crating, and moving company expenses. If you don’t travel by car, you can deduct the cost of shipping your car to your new home. If they can’t travel with you, you can also deduct the cost of shipping pets to your new home.
If your personal effects (e.g. furniture, household items, etc.) must be stored, you can deduct that cost as well. (Note: there are limits to the length of storage time.) You may also deduct the costs associated with disconnecting and connecting utilities.
You may not deduct any costs associated with the purchase of a new home, selling your old home, or entering or breaking a lease. If your employer reimburses you for moving expenses, you may need to include that amount as income.
If you are in the Armed Forces or if you are a retiree working abroad (or a survivor of one), different rules apply.
Yes, moving can be a headache but don’t overlook the possibility of taking all deductions that are due to you.Contact us and let us help you with all of the requirements and details. It will be one less thing for you to worry about!