Moving Expenses Tax Deduction: Ultimate Guide

9

Min Read

David Maina

Moving house is often one of the biggest financial hits most people ever have to take. It’s not only financially draining but it’s also time-consuming. That’s why taxpayers every year look to deduct their moving expenses and try to reduce their tax liability.

Unfortunately, the Tax Cuts and Jobs Act – which was passed in 2017 – changed the rules for writing off moving expenses. Most people now can't claim a deduction when they relocate – and this act is set to stay until 2024. However, if you serve in the military, you can qualify for the moving expenses tax deduction.

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What are moving expenses?

According to the IRS, moving expenses are costs that you incur when you relocate for a new job. They’re deductible if they’re ‘reasonable’ and ‘necessary’ expenses for relocating yourself, your family, and your possessions.

These reasonable moving expenses can include:

Qualifying active-duty military personnel can deduct moving expenses

In the past, moving expenses were part of above-the-line deductions. They allowed taxpayers to reduce their taxable income, without even itemizing their deductions. You’d recoup any money you spent when moving for a job, and after writing off the expenses, you could still claim the standard deduction.

But that’s until the Tax Cuts and Jobs Act (TCJA) came into play and suspended the moving expense deduction. Many taxpayers now don’t get to recoup the costs of moving for work or looking for new jobs.

The only ways to do so are:

  • If you're an active duty military member
  • If you moved in 2017 and qualified

Military personnel can deduct moving expenses if they’re on active duty and their move was because of a Permanent Change of Station (PCS) or due to deployment orders.

Here’s what a permanent change of station includes:

  • Relocating from one permanent post of duty to a different permanent post of duty  
  • Relocating from your home to your first-ever post of duty
  • Relocating from your previous post of duty to your home or a nearer point in the country. Note that the moving must have happened within 1 year of ceasing your active duty

Members of the armed forces need to use Form 3903 to report moving expenses when filing their federal tax returns. Here’s an overview of the tax form:

  • Line 1 – In this line, you’ll report your storage and shipping expenses for moving your possessions
  • Line 2 – You’ll record traveling, lodging, and gas expenses
  • Line 4 – Any reimbursements you receive from your employer when moving house should be reported here
  • Line 4 – If you get any reimbursements from your employer for amounts in the 1st and 2nd lines, you need to report them here, too

If you meet the IRS qualifications for this deduction for multiple moves, you can use separate Form 3903s for each move you make.

Note that the spouses or dependents of any imprisoned, deceased, or deserted military personnel can also qualify for the deduction.

What about other taxpayers?

As we’ve previously mentioned, only taxpayers who relocated in 2017 – before the Tax Cuts and Jobs Act came into place – can deduct their moving expenses.

The IRS rule is that you can amend the returns you filed within a timeframe of three years. Alternatively, you can also do so if two years haven't passed since you last paid taxes on the returns you filed – whichever is later.

That said, you need to meet three conditions to qualify for the moving expenses write-off:

“Closely related to starting work”

The IRS gives you a timeframe of one year from the time you relocated to the first time you reported at your new job to meet this condition. For instance, let’s say you relocated from City A to City B on August 10. The first time you reported for work was October 20th. In such a case, you started working after 2 months, so you meet the “closely related to starting work” condition.

Even if the sequence of events was reversed, you’d still meet this condition. Let’s say you started working in City B on June 1. You then had to bring all your possessions from City A to City B on September 1. You’ll still meet this test because you moved within one year from the day you reported for work at your new job location.

The distance test

The distance between your new work location needs to be more than 50 miles if you compare it to the distance between your previous job and your old home.

For instance, if your previous workplace was 20 miles from your old residence, then your new job needs to be at least 70 miles from your old home to meet the distance test.

If you previously didn't have a workplace, then your new job needs to be 50 miles further from your former home.

If you don’t move 50 miles further, then you need to prove to the IRS that your relocation was necessary for your line of work and that a closer residence will save you more time and money.

The time test

The IRS requires you to work full time for more than 39 weeks out of the first year that you stay at your new home for you to pass the time test. Note that these weeks don’t need to be continuous and you don’t have to be working for the same employer. The only condition is that you need to remain in the same commuting area.

If you’re self-employed, then the time frame doubles. So you’ll have to work full time for more than 78 weeks out of the first 2 years after your move.

One thing you need to know is that married couples who file their returns jointly still need to pass these tests, but they can do so individually. For instance, one of you can meet the distance test, and the other one can pass the time test. However, you can’t add your time together to pass the time test. One of you needs to work for more than 39 weeks in the first year, or 78 weeks in the first two years if you’re self-employed.

What are the expenses that you can’t deduct?

Some expenses don’t qualify you for the federal moving expense deduction, and they include:

  • The costs of buying a home – Any amount you spend paying for mortgage fees or fees for selling your old home isn’t deductible. They are typically not considered as part of moving expense deductions.
  • Meal expenses – In your travel, you’ll likely purchase some meals and drinks to give yourself a boost. Unfortunately, the costs associated with buying meals aren’t deductible according to the IRS.
  • Costs of moving new furniture – Let’s say you buy brand-new furniture on your way to your new residence. You might be wondering: are the moving costs of the furniture deductible? Unfortunately, they’re not, you can’t write off the costs incurred to move new furniture – and you can’t deduct the costs of the furniture too.
  • Sightseeing costs – According to the IRS, you need to only deduct the mileage costs of traveling through the most direct route to your new home. This means that you’ll settle the expenses incurred when sightseeing from your own pocket.
  • House-hunting costs – You’d obviously want to purchase your new home at the best deal possible. Unfortunately, you can't deduct expenses when house hunting.
  • Return trips to your old home – If you left something valuable in your old residence, then you’ll have to pay the cost of going back for it from your own pocket. The IRS doesn’t count such an expense as a deductible expense.

How your employer can help

For many taxpayers looking to relocate, the changes from the Tax Cuts and Jobs Act can be a twofold blow. The IRS now considers any money you’re reimbursed by your employer for moving house as taxable income. And your employer can’t claim any reimbursed moving expenses as a tax write-off, too.

So these expenses won’t help reduce your tax bill – you may even have a higher tax bill at the end of the year after your employer has covered the costs of your relocation.

Luckily, some employers are now considering “grossing up’’ to ease their employee’s tax burden. What this means is that your employer can give you more money than what’s needed to pay the extra taxes you’ll incur for receiving moving expense reimbursements.

Consider negotiating for a “gross-up” to counteract the fact that reimbursements are taxable.

States that allow the moving expense tax deduction

Even though the federal government suspended the write-off for moving expenses back in 2017, some states still allow taxpayers to claim the moving tax deduction when they file their state tax returns.

Some of these states include:

  • Arkansas
  • New Jersey
  • New York
  • California
  • Hawaii
  • Massachusetts
  • Pennsylvania

Note that the rules in some of these states vary. For instance, New York still allows the relocation expense tax deduction and excludes reimbursements for moving expenses from income in state returns.

Always consult with your tax advisor to understand your state's rules and regulations, as they’re often changing.

Can you deduct charitable donations when moving?

Most people often donate things they no longer use before moving out. This is a great strategy to reduce the number of valuables that you need to pack and transport.

The good news is that the IRS allows you to write off up to 60% of your adjusted gross income (AGI) through charitable donations. You can even deduct up to 100% of your AGI if you make your donations in cash.

The IRS, though, can also limit you to 20%, 30% of 50% of AGI, depending on the organization you contribute to – contributing to some private foundations, fraternal societies, and cemetery organizations can limit your deduction.

Even if you exceed your limit, you can still deduct the remaining amount over a period of 5 years through the “carryover” process.

Remember to always document your donations, no matter the amount you are contributing. If you’ve contributed in cash, some of the qualifying documents can include:

If the donation was an automatic withdrawal from your payroll through your employer, then you can store the copies of your W-2 form, or any pay stubs that show how much you donated and the date you contributed to an organization.

David Maina
David is an experienced B2B financial copywriter, specializing in content related to accounting, financial planning, and small businesses. Over the years, he has helped fintech brands win more traffic and skyrocket conversions with engaging, long-form content. A nerdy interest in numbers, and passion for creative writing drives him to create financial content that's truly unique. You can reach him at financeandinsurancewriter.com

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