According to the U.S. Census bureau, up to 40 million people move from their current residence each year.
That represents just over 14% of the population and as everybody knows, moving is expensive, stressful, and back breaking.
For those who are moving because of a new job, the IRS softens the blow by allowing a portion of those moving expenses to be deducted on your tax filing— but be careful.
In order to deduct your moving expenses, you have to pass two important IRS tests.
If you started a new job on the other side of town and you used that as a reason to purchase a new home, unless your new residence is more than 50 miles away, you can’t deduct any of your moving expenses.
This is what the IRS calls the distance test.
Time Test- It Has to Coincide
In order to deduct moving expenses, the move has to coincide with the start of your new job. Any moving expenses you incur within 12 months of starting your new job, providing the move meets the distance test, is deductible.
You also have to work full time for at least 39 weeks during the first 12 months that you arrive in your new location. If you’re self-employed you have to work at least 78 weeks in the first 24 months of your move requiring you to show actual proof of inflow during those 78 weeks. (No under the table income or you’ll have a tough time convincing the IRS that you were working.)
Exceptions to the Tests
If you are a member of the armed forces and are moving to a new permanent station OR you are a retiree who was working abroad (or a descendent of a retiree working abroad) and you return to the United States then the rules are different. Make sure to consult IRS publication 521, listed below, for specifics.
What Moving Expenses Can I Deduct?
Most of the direct costs of moving are deductible.
If you hired a mover or somebody to pack your belongings, write those off.
The cost of packing materials if you packed your home on your own, and storage expenses are also deductible.
In addition, the one way cost of airfare for each person or the allowable mileage deduction for the one way trip are deductible along with hotel expenses.
You can only deduct the one way expenses. If you have to take multiple trips, only one, one way trip per person is allowed.
What Moving Expenses Can’t I Deduct?
As a general rule, if it isn’t directly related to your move, you can’t deduct it. Makes sense, doesn’t it?
You can’t deduct any portion of the sale of your home or the cost to connect or disconnect utilities. You can’t deduct the costs of breaking a lease or storage costs that may be incurred because of your belongings won’t fit in to your new home.
What If My Company Reimburses Me?
If your company pays for some of these expenses, in most cases, they aren’t allowable deductions because you didn’t incur any expense as a result. Again, makes sense.
Where Do I Find the IRS Language?
IRS Publication 521 (1) contains everything regarding moving deductions.
There are also other publications like this one (2) that provide the important points in an easier to read format.
Most cases will require you to file Form 3903 to figure out your moving expense deduction.
Before you deduct any moving expenses be certain that you meet the time test and the distance test as explained by the IRS. If you meet those two criteria, any costs directly incurred as a result of your move are probably deductible. To be extra careful, consult a qualified CPA.