Sep 16, 2016 September 16th, 2016
Where you work is a major factor in where you live (duh!), and in the interest of keeping U.S. taxpayers gainfully employed, Uncle Sam will help foot the bill if you have to relocate for work. Awesome, right? In other words, you can deduct moving expenses on your annual income tax return.
Under the right circumstances, that is.
Single taxpayers can deduct qualified job-related moving costs—although an unmarried partner joining them on a move isn’t entitled to the same tax relief. But married taxpayers can both enjoy the tax savings even if only one-half of the pair’s job takes a couple—or a family—to a new home. Still with us?
Before you sharpen your pencils to start tallying up all the money you’ll save by filling out Form 3903: Moving Expenses, you’d better make sure your move passes the following tests.
OK, this one may seem obvious, but we’ll just say it: In order to deduct job-related moving expenses, you have to actually have a job in the place where you’re moving—not just the hope of one.
And we’re not talking about a move down the street, either.
“To qualify for a moving deduction, your new job location must be at least 50 miles farther from your former home than your old job location,” says ZM Ishmurzina, CPA, a partner at Artio Partners in Chicago.
Don’t expect to take a work hiatus a few months after relocating for the job, either.
Michael Raanan, a former IRS revenue officer who’s president and enrolled agent at Landmark Tax Group in Santa Ana, CA, says employees must work full time for at least 39 weeks during the first 12 months that follow a move. Self-employed individuals must work for at least 78 weeks during the first 24 months after moving.
That doesn’t mean you’re chained to your desk. Paid and unpaid leave or vacation time counts as employment time, says Gail Rosen, CPA, PC, in Martinsville, NJ. So do involuntary absences because of illness, strikes, shutouts, and natural disasters. And periods of seasonal unemployment of less than six months count if covered by your employment contract, or if you are self-employed.
Rosen says the time test is waived if you are laid off a job in which you could have reasonably satisfied this test, fired for reasons other than willful misconduct, or transferred for the employer’s benefit.
If you’ve passed these tests, it’s time to tally up all the expenses you can—and can’t—deduct.
Travel expenses for the move are deductible, including transportation and lodging for you and members of your household, including pets. Expenses for the day of arrival are deductible, too.
The cost to pack, ship, unpack, and store your belongings is deductible as long as it happens up to 30 consecutive days after the move date and before the arrival date to a new location. “Additional expenses can be claimed if you move overseas,” Rosen says.
Reasonable costs only. Although there’s no dollar limit on your deductible expenses, don’t expect to get away with anything truly extravagant. And if your employer reimbursed your moving expenses, Raanan says, you can claim a moving expense deduction only if the reimbursement is included in your wages.
No add-on vacation costs. Don’t expect to squeeze in a vacation en route and deduct for that, too. “You also have to move by the shortest and most direct route available by the conventional mode of transportation used and in the shortest time commonly required to travel that distance,” Rosen says.
Also excluded: Sadly, you cannot deduct any meals, any part of the purchase price of your new home, car tags, driver’s license, expense of buying or selling a home (including closing costs, mortgage fees, and points), cost to enter or break a lease, home improvements to help sell your home, or the loss on the sale of your home. Deal with it.
The expenses must generally be incurred within a year of your work start date at the new location, but Rosen says expenses may be postponed in certain situations—such as if you delay a move to allow your child to finish school.
You can deduct expenses in the year you pay them, even if you haven’t satisfied the minimum employment period by filing time, says Rosen. You can also wait and claim the deduction on an amended return when you have satisfied the minimum employment period.
If you deduct and for some reason it turns out you can’t qualify after all, you’ll have to either include the amount you deducted in your next year’s income or file an amended return for the year of the deduction.
“The best thing to do is save any and all receipts and/or canceled checks you think, question, or wonder might be deductible and talk to a tax professional to make sure you maximize your deduction without getting yourself in hot water with the IRS,” says Raanan.