Moving Expenses That Qualify for Tax Deductions

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Moving this year? Then be sure to see if some of your moving expenses can qualify in this year’s tax deductions.

The American Moving and Storage Association reports that summer is the most common time of the year to change location. For many reasons, the summer months are significantly more popular to pack up and settle down elsewhere. There are even more reasons to stay organized during the entire process and one of them (financial) is that certain expenses may be deductible on your tax return.

In order to claim deductions, you have to fill out Form 3903 that will help you determine the exact amount to deduct. But more importantly, you will have to learn whether or not you qualify for deductions in the first place.

To do that, you have to pass three of the following conditions:

  • The move is related to your new employment – you can consider expenses you experience within the first year from the time you began working, or as close as possible to that date.
  • Distance test.
  • Time test.

Distance test calculates and compares mileage between old home to the new workplace, and old home and old workplace. The new employment place has to be at least 50 miles further away than the distance you traveled before. Let’s assume that today you drive 12 miles to work. If you get a new job and want to deduct moving expenses, the new place must be at least 62 miles away from your current home. The IRS has a handy little table to calculate whether or not you pass the distance test. Here’s my version of it:

1. Number of miles from your old home to your new workplace _____ miles
2. Number of miles from your old home to your old workplace _____ miles
3. Subtract line 2 from line 1. If zero or less, enter -0- _____ miles

Is line 3 at least 50 miles? If YES, you pass the test. Otherwise you don’t meet the requirements to claim deduction based on moving expenses and there is no need to fill Form 3903.

With respect to Time test, if you are an employee, you have to work full time at least 39 weeks during the first 12 months you arrive at the new location. That means the IRS gives you about 3 months to find a new job. Requirements for self-employed are similar, and stand at 39 weeks in the first 12 months and 78 weeks during the first 24 months (full time employment). See the IRS website for exceptions to the time test.

What are the expenses that you can deduct? All the necessary and expected cost of moving such as transportation (gas, airfare), lodging, parking and toll fees, cost of packing material, shipment of your possessions, cost of connecting and disconnecting utilities.

Based on the IRS guidelines, you cannot deduct the following expenses:

  • Meals during the moving process.
  • Stopovers and side trips.
  • Purchase price of a new home or any other expenses resulting from buying or selling a house.
  • Security deposits paid or lost.
  • Fees or penalties associated with violating lease agreements.
  • Purchasing a car or driver license fees.

If you’re unsure whether or not you qualify for deduction, there is one tool on the IRS’s website that I would consider as a starting point. It is a short questionnaire, taking about 10 minutes to complete that can give you a general idea whether or not you qualify for deductions and what type of deductions. Once you complete the test, you can investigate some specific aspects of your situation in more detail. Below is an outline of the test with the list of questions you can expect.

 

Can I deduct moving expenses? Review the test on the IRS website.

Questions:

  1. Tax year you are asking about.
  2. Citizenship status – US citizen (yes/no); resident alien (yes/no).
  3. Location – Where did you move?
  4. Move related to a military related issue (yes/no) – additional questions about your status with armed forces ensue.
  5. Work/job related (yes/no).
  6. Moving expenses incurred within one year from the time you began to work? (yes/no) – you can move and look for a job; not necessary to have a job set up before changing location.
  7. Distance to the new job – compare between the distance from your new home to the new job vs. previous home to the new job.
  8. Distance test – see distance test above.
  9. Work status (employee, self-employed, both).
  10. Time test – see time test above.
  11. Moving expenses questions – did you pay the following expenses?
    1. Packing and transporting.
    2. Connecting/disconnecting utilities.
    3. Car and pets shipment.
    4. Moving your things from place other than your previous residence.
    5. Storage expenses.
    6. Lodging expenses (meals not included).
    7. Car transportation.
  12. Did you make stops for sightseeing?
  13. Did your new employer reimburse you for any of those expenses?

At this point you receive an answer about deductions. It is a “YES” or “NO” answer and a summary of the expenses that you can and cannot deduct on your federal tax return.

The IRS also suggests submitting Form 8822 notifying of address change. This ensures that any correspondence is delivered to your new address.

As always, keep the receipts.

Helpful links:
Form 3903 – Moving Expenses
Form 8822 – Change of Address
Can I Deduct My Moving Expenses?