So, it appears that you are moving or have already moved. First let me say congratulations on your move as it usually comes with some good news about a promotion, new job, etc. Second I want to let you know that you may be eligible to deduct your expenses on your tax return. The first step in determining if you can deduct your moving expenses is meeting the following requirements:
- Your move is closely related to the start of work
- You meet the distance test
- You meet the time test
Move Related to the Start of Work
In most cases, you can consider 1 year from the date you started your new job as a good starting point. If more than 1 year passes before you move, it will be difficult to deduct the expenses unless you can show that extenuating circumstances existed that prevented you from moving (i.e. medical issues, child completing high school, etc.).
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 was from your former home (what?!?!?). Let’s look at an example:
Andrew drove 10 miles to get from his former home to his previous main job. In order to meet the distance test, Andrew’s new job must be at least 60 miles (50+10) from his former home.
If this is your first job or you are returning to work full-time after an extended period, your new job location must be at least 50 miles from your former home.
If you are a member of the military, you do not have to meet the distance test if you PCS. See Publication 521 for more information.
Time Test for Employees
For employees, you must meet the 39-week test. In other words, 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. This time does not necessarily have to be spent with the same employer.
Time Test For Self-Employed Individuals
If you are self-employed, your calculation is a little more complex. To meet the time test, you must work full-time for at least 39 weeks during the first 12 months and for a total of at least 78 weeks in the first 24 months of when you arrive at your new job location.
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Now that you have determined that you can deduct your expenses (hopefully), we will now look at the items that are deductible. Please keep in mind that these amounts must be reasonable. In other words, if you are moving from New York City to Miami, you cannot deduct all of your traveling expenses if you decided to take a detour and travel around the US. Just deduct the reasonable expenses from New York City to Miami.
Deductible Moving Expenses
- Moving personal effects and household goods (for all members of your household)
- Traveling (including lodging but not meals) to your new location
Yep, that’s all you can deduct. That means you cannot deduct any of the following:
- New or old housing costs (i.e. down payments, costs of looking for a new home, losses, etc.)
- Car tags, drivers licenses, etc.
- Cost of breaking a lease
- Real estate taxes
- Cost of returning to your former home
- Storage costs (except for those incurred during transit or for foreign moves)
Now let’s say that you were lucky enough to receive some type of reimbursement from your employer regarding your move. This reimbursement was either from an accountable plan or not. If it was from an accountable plan (ask your employer to be sure), you had to do the following:
- Your expenses must have a business connection – that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. Two examples of this are the reasonable expenses of moving your possessions from your former home to your new home, and traveling from your former home to your new home
- You must adequately account to your employer for these expenses within a reasonable time
- You must return any excess reimbursements back to the employer
If you meet all of those requirements, your reimbursement will not be included in your taxable income but will be listed in box 12 of your W-2. You must then deduct this reimbursement from your actual deductible expenses to see if you have any deduction remaining. Let’s look at a quick example:
John moved from Atlanta to Chicago for a job. His new employer offered to pay him $2,000 under an accountable plan for his moving expenses. John incurred $2,500 in deductible expenses for the move. When he completes his tax return, he will fill out Form 3903 and deduct the reimbursement from his deductible expenses. Therefore, John will only be able to deduct $500 ($2,500 -$2,000) on his return.
Now, if your employer just said that they would pay you a flat $2,000 for your move but did not need to see any receipts, they are paying you under a non-accountable plan. They are technically just paying you an additional $2,000 in salary for that year and it is reflected that way on your W-2.
If you employer paid you this way, you can deduct all of your eligible moving expenses on your tax return. You are able to do this because the money that the company paid you was included in your taxable income.