Whether you're relocating across town or across the country, moving is expensive. By the time you've paid to have your household goods packed and moved, cancelled and reconnected utilities and racked up storage fees, you could easily be out thousands of dollars.
Many people don't realize that if they're moving to start a new job, transferring with a current employer or even returning to the U.S. to retire after working abroad, their moving expenses may be deductible on their federal income taxes. Not only that, moving expenses are an "above-the-line" deduction. This means they reduce your adjusted gross income on which taxes are based and can be claimed even if you don't itemize deductions.
Here's how the moving expense deduction works:
You generally must satisfy two tests in order to claim a moving-expense deduction:
Distance test. The distance between your new job and your former home must be at least 50 miles farther than your previous workplace is from that home. For example, if you used to work 10 miles from home, your new workplace must be at least 60 miles from your old home. If this is your first job or you were unemployed, the job must be at least 50 miles from your old home.
Time Test. If you're an employee, you must work full-time for at least 39 weeks during the 12 months after you move, although they needn't be consecutive or for the same employer. If you're self-employed, you must work at least 78 weeks during the first 24 months after moving, including at least 39 weeks during the first 12 months.If you moved this year for work, you can claim the moving expenses deduction on your 2013 taxes even if you haven't yet met the time test, provided you expect to during the year after moving. If, at the end of that 12-month period (24 months for self-employed), you didn't meet the time test, you must reverse the deduction, either by including the original deduction amount as "other income" on your 2014 tax return, or by filing an amended 2013 return without the moving expense deduction. Moving expenses that qualify for deduction include:
- Costs for packing and transporting household goods, personal effects, pets and vehicles. This includes fees paid to professional packers and movers.
- The cost of moving personal belongings from someplace other than your old residence (such as a summer home or a relative's home), limited to the amount it would have cost to move them from your previous home.
- Fees to disconnect and/or connect utilities at either end of the move.
- Travel costs for you and your household members (by the most direct route available by conventional transportation) to your new home, including one day's lodging along the way. However, meals cannot be charged.
- Family members needn't move at the same time as you, nor by the same means of transportation. For example, if you drove, but your family later flew to the new location, both sets of moving expenses would be deductible.
- Use of your car during the move, either by claiming actual expenses, or by claiming the standard mileage rate of 24 cents per mile. For either method, you can add parking fees and tolls.
- Storing and insuring your possessions for up to 30 days after they leave your former home but before being delivered to your new home; for example, if there's a lag before you can move in.
- You may deduct expenses regardless of whether you're moving within, to or from the U.S., although special rules for calculating moving expenses outside the U.S. apply. See IRS Publication 54 for details on foreign moves.
- Expenses of buying or selling a home, including closing costs, mortgage fees, points, pre-move house-hunting expenses, home improvements or new furnishings. (Note: Real estate taxes may be eligible for a deduction if you itemize).
- Loss on the sale of your old home.
- Return trips to your former residence.
- Charges for signing or breaking a lease.
- Fees for new car tags or driver's license in your new locale.
- Expenses incurred on side trips en route to your new home (e.g., sightseeing along the way).
- Losses from closing club memberships.
- Security deposits (including any given up due to the move).
- Storage charges except those incurred in transit and for foreign moves.
- Also, you cannot take a moving expense deduction and a business expense deduction for the same expenses.
To file for a moving expense deduction, you must complete IRS Form 3903 and attach it to a Form 1040 income tax return. Because it's an above-the-line deduction, you do not need to complete a Schedule A unless you are otherwise itemizing deductions. Note: You cannot claim moving expenses on a 1040EZ Form. IRS Publication 521 provides complete details on the moving expense deduction.Here are a few other rules to remember:
- If your employer reimburses you for any deductible expenses, you must reduce your moving deduction by that amount. Also, keep in mind that employer reimbursement for non-deductible expenses will likely be treated as wages on your W-2 Form.
- On joint tax returns, either spouse can satisfy the time test, but your work periods cannot be combined to qualify.
- The time test does not apply if you become disabled, die, get laid off or fired before completing the period, or if you're a member of the Armed Forces and moved because of a permanent change of station.
- If you are a retiree who was working abroad or a surviving spouse or dependent of someone who died while working abroad, you do not have to meet the time test. See IRS Publication 521 for details.
Take a few minutes to calculate whether you qualify for the moving expense deduction -- you could save a bundle on your taxes.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.