Special rules for deducting moving expenses
There are many costs associated with moving and they can really add up fast. Fortunately, if you are moving because of a new job, or your current job changed location, you may be permitted to deduct your moving expenses on your income tax return.
General Rules for Deducting Moving Expenses
In order to be able to deduct your qualified moving expenses, the IRS has 3 main tests that you must pass:
• Your move is closely related to the start of work
• You meet the distance test
• You meet the time test
Move Closely Related to Start of Work
You are generally allowed to deduct moving expenses that you incur within one (1) year from your first day of work. Your move must be closely related to the location of your new job as well as the time you start your new job. According to the IRS, your move is deemed to be closely related in place when “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.” The term “home” means your principal residence (which may be a house, condominium, apartment, mobile home, or other similar dwelling).
The Distance Test
To be eligible for the moving expenses tax deduction, your new job location must be at least 50 miles farther from your old home than your old job location. If you are starting a new job and did not have a former workplace, your new job location must be at least 50 miles away from your old home. According to the IRS, the distance is determined by using the shortest of the most commonly traveled routes (so you won’t be able to go out of the way or use the scenic route to meet the mileage requirement).
The Time Test
To qualify for the moving expenses tax deduction, you must also work for an employer full-time in the vicinity of your new job location for at least 39 weeks during the year following your move. Keep in mind that the 39 worked weeks do not have to be consecutive or even with the same employer, which means you are free to change jobs after you move. If your employer transfers you or fires you after you move, the IRS will overlook the 39-week requirement. There are also some exceptions for disability, death, involuntary separation, and other unique situations.
Special Rules for the Moving Expenses Tax Deduction
There are some special rules and exceptions when it comes to deducting your moving expenses, depending on your particular situation. For example, you may find there are slightly different rules and benefits if you are a business owner or if you have been unemployed/underemployed for a substantial amount of time. Sole proprietors, partners, and the self-employed should also take a closer look at the rules that apply to them. Here are some examples of special situations that have slightly different IRS tax rules regarding the moving expenses deduction.
If you are self-employed and you’re looking to deduct your moving expenses, there are some special time requirements you need to meet. To qualify, you must work full-time for at least 39 weeks during the year following your move. Additionally, you must work full-time for a total of 78 weeks during the first 2 years (a.k.a. 24 months, or 104 weeks) immediately following your arrival to your new home. Note that the worked weeks do not have to be consecutive.
Married Couples Filing Jointly
If you are a married couple filing a joint tax return, only one spouse needs to pass the distance and times tests in order to qualify for the moving expenses tax deduction. In other words, one spouse can satisfy the distance requirement and the other spouse can satisfy the time requirement. Because of this rule, a married couple can really benefit from this tax break. It is important to note, however, that spouses cannot combine the weeks they have worked to satisfy the time test.
For instance, take a husband who works from home as a self-employed entrepreneur and his wife who works for a company which is 10 miles from their home. If the wife gets a new job or is transferred (qualifying under the distance test), they can deduct their moving expenses on their joint income tax return thanks to the husband’s self-employed status. As long as the husband meets the proper time test (39-weeks and 78-weeks), they can claim the moving expenses tax deduction.
On the flip side of that example, let’s say a husband gets a new job or is transferred to a new location. But in this case, the couple does not move right away (perhaps they stay in their old home for another year) and the husband makes the longer commute for the time being. Typically, the husband is only allowed to deduct moving expenses which were incurred within a year of his new job’s start date — but in this case, that deadline has since passed. Fortunately however, they can still deduct their qualified moving expenses if the wife takes a job in the vicinity of their new home. Or, if the wife is self-employed, she can help them claim this tax deduction merely by moving her business to the new location.
Members of the Armed Forces
If you are a member of the United States military and your move was a result of a military order and/or a permanent change of station, you are not required to fulfill either the distance test or the time test.
Reimbursements from Your Employer
To know whether your boss is reimbursing your moving costs, pay attention to the forms you receive and fill out. If you have a particularly generous employer and they are paying for some of your job-related moving expenses, you cannot deduct those expenses on your tax return. The IRS will not provide tax help for any moving expenses that your employer reimburses.
In general, there are two ways that your employer may pay for your moving expenses. The company may give you a tax-free reimbursement for the amounts you can deduct yourself, in which case the amount of the reimbursement should appear as a miscellaneous nontaxable item on the W-2 Tax Form you receive from your employer. Or, your company may add the reimbursement to your wages. If the reimbursement is added to your salary, you will need to fill out a Tax Form 3903 (Moving Expenses) to claim the moving expenses deduction.
Qualified Moving Expenses
The moving expenses tax deduction, allows you to deduct the non-reimbursed costs of moving household goods and personal belongings to your new residence. These expenses can include the cost of valuation, transportation, packing, unpacking, and storage-in-transit. Each qualified expense has a 30-day limit — for example, you can deduct the cost of renting a storage unit for up to 30 days (if you cannot move into your new home right away).
For this tax deduction, qualified moving expenses typically include the following:
• The cost of shipping automobiles and boats
• The cost of transporting household pets (i.e. dogs, cats, tropical fish)
• The moving-related cost associated with connecting and disconnecting utilities
• The cost of moving personal belongings from a place other than your old residence (such as a summer home or relative's home), but not exceeding what it would have cost to move them from your old residence
• The cost of lodging (for you and other members of your household) while traveling to the new residence (but not the cost of meals)
How to Claim the Moving Expenses Tax Deduction
The moving expenses tax deduction is an “above-the-line” deduction, which means it is taken before your AGI (adjusted gross income) is calculated — instead of after like most tax deductions. Above-the-line deductions are subtracted from your gross income and the resulting amount is your AGI.
To claim this tax deduction, your moving expenses should be calculated on IRS Tax Form 3903 (Moving Expenses) and deducted as an adjustment to your income on IRS Tax Form 1040 (U.S. Individual Income Tax Return). Attach Form 3903 to the 1040 Form that applies to the year when you moved. Note that you do not have to complete or submit a Schedule A to claim the moving expenses tax deduction.
According to the IRS, you should not file Form 3903 if all of the following apply:
• You moved to a location outside of the United States in a previous year.
• You are claiming only storage fees while you were away from the United States.
• Any amount your employer paid for the storage fees is included as “wages” in Box 1 of your IRS Tax Form W-2.
For More Information
For more information about the moving expenses tax deduction — including deductible and nondeductible expenses, special rules, and moves to locations outside the United States — please see IRS Publication 521 (Moving Expenses)
IRS Tax Form 3903 (Moving Expenses)