Over the past year or so we’ve had a few of our clients move to another state. In addition to knowing if their new city imposes an income tax the next question usually is “What moving expenses can I deduct?” The answer is really a two part matter of can I deduct my moving expenses AND what expenses can be deducted.
Who can deduct moving expenses? In order to deduct your moving expenses, you must meet the following three requirements:
- Your move must be closely related, both in time and in place, to the start of work at your new job location.
- Time: Moving expenses incurred within 1 year from the date you first reported to work at the new location can “generally” be considered closely related in time to the start of work.
- Place: If the distance from your new home to the new job location is not more than the distance from your former home to the new job location, you can “generally” consider yourself as satisfying this test.
- You must meet the distance test. Your move will meet the distance test if your new main job location is at least 50 miles farther from your former home than your old main job location was from your former home. See the illustration below for an example.
- You must meet the time test. If you are an employee, you must work full time for at least 39 weeks during the first 12 months after you arrive in the general area of your new job location (39-week test). If you are self-employed, you must meet the above AND work a total of at least 78 weeks during the first 24 months after you arrive in the general area of your new job location (78-week test).
What moving expenses can be deducted? Once you determine that you qualify to deduct your expenses, you should keep track of the cost related to the following (which are deducted on IRS Form 3903):
- Moving your household goods and personal effects (including in-transit or foreign-move storage expenses), and
- Traveling (including lodging but not meals) to your new home.
Moving household goods and personal effects. You can deduct the cost of packing, crating, and transporting your household goods and personal effects and those of the members of your household from your former home to your new home. For purposes of moving expenses, the term “personal effects” includes, but is not limited to, movable personal property that the taxpayer owns and frequently uses.
Travel expenses. You can deduct the cost of transportation and lodging for yourself and members of your household while traveling from your former home to your new home. This includes expenses for the day you arrive.
If you use your car to take yourself, members of your household, or your personal effects to your new home, you can figure your expenses by deducting either:
- Your actual expenses, such as the amount you pay for gas and oil for your car, if you keep an accurate record of each expense, or
- The standard mileage rate per the IRS for the tax year of the move (as it is indexed annually)
Nondeductible expenses. The following expenses are not deductible:
- Pre-move househunting expenses
- Return trips to your former residence
- Any part of the purchase price of your new home
- Expenses of buying or selling a home (including closing costs, mortgage fees, and points)
- Expenses of entering into or breaking a lease
- Home improvements to help sell your home
- Loss on the sale of your home
- Mortgage penalties
- Real estate taxes
- Security deposits (including any given up due to the move)
- Storage charges (except those incurred in transit and for foreign moves)
- Car tags
- Driver’s license
If you need more information feel free to give our office a call, shoot us an email via the address in the footer or check out IRS Publication 521.